Say you have just taken up residence in Massachusetts and have decided to take on the real estate market. After coming down from your lobster roll high you have realized you know absolutely nothing about real estate. You wife knew this before you finished your explanation of your half-cocked scheme to take over the Cape Cod market.
You remembered that you still have to pay for regular expenses, student loans, car note and daycare tuition for your toddler. Upon calculating all the expenses, you decide to go to your local bank for loan information.
Once they see the type of credit score you are packing they politely decline. After recovering from that hay-maker you decide to be successful the hard money route is the best option for you. But, there are some things you need to know before you take on a residential hard money lender.
When it comes to hard money loans there is some fine print you need to read
While these loans are great in a pinch sometimes they could carry a few negatives. For example, if you have done a little research you probably read that your credit score really does not matter. Most residential hard money lenders will not deny you a loan based solely on your credit score. Often they will grant you a loan based on the amount of collateral you can use.
Although many lenders do this do not start jumping for joy just yet. There are some lenders that will judge how quickly you will be able to pay off your loan by your credit score. That combined with a less than decent amount of collateral, while unlikely, you could be refused a loan.
When working with residential hard money lenders there are many fees
Fees, there will always be fees and expenses when you are taking on real estate. If you are considering a hard money loan certain actions are required to get the loan. For example, to get a hard money loan you need to pay for a title policy, insurance and you need to get the property appraised, as well. After this is done you still have to take potential repairs into consideration.
Speaking of repairs, when you are applying for a hard money loan there is an after-repaired-value that needs to be calculated before you receive your loan. Basically, what this means is once the property is appraised and the potential repairs are assessed, the loan will typically not exceed 70 percent of ARV. If there are more repairs that occur later on in the rehabbing of the property your residential hard money lender will require you to provide the correct documents and estimates before they lend you more money. This is called a “draw request.”
Are residential hard money lenders interested in interest?
Simply put yes, typically hard money loans tend to have higher interest rates. Usually, if you go through a bank you could get a lower rate, but like we said before you have bad credit. You are high risk to the Bank of Massachusetts so you have to pay a little more for your loan. Will it be extremely pricey? It could be, but there is give and take when you are in the real estate business. Some properties will be winners and others will have you in a daze with lobster hanging from your mouth.
In the right conditions, a hard money loan can be a godsend, on the other hand you could end up paying back a lot of money if you choose the wrong Cape Cod. Before you choose your next loan, you need to do extensive research on the company’s policies and the lender, well.
Dennis Dahlberg Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.