If your loan request has been turned down by the bank, then you should consider hard money lenders as a reliable alternative.
Hard money lending is a short-term loan acquired from private investors backed by a significant asset such as real estate and at terms that are usually more strict than a traditional lender such as a bank.
If you’re considering real estate hard money loans, you need to consider the qualities of an ideal hard money lender. This article should serve as a guide to help you find a good hard money lender to help finance your project. Reach out to Asset Based Lending to learn more about it.
1) Has a Convenient Minimum and Maximum Limit
Working with a lender who provides a limit within your needs will determine if your property fits within their lending criteria. Find out how much cash you’ll be expected to bring, i.e., how much do they require you to contribute vs. financing through them vs. another source. You don’t want your hard money lender asking for more than 50% or more of the total purchase price.
2) Provides Both Short and Long-Term Loans
Some lenders will want their money back quickly, while others are more comfortable with loans set up as longer terms with monthly payments over a certain amount of time.
Are you looking to invest in a project from the ground up or do you want to do a quick fix and flip? Make sure payment terms are made clear before putting pen to paper on any loan agreement.
3) Have a Good Reputation
Your ideal hard money lender should have a good record from their previous clients. Try and do some online research about a hard money lender before making any commitments.
Many real estate investors are on social media sites like Facebook, Twitter, LinkedIn, and others to build up their public profile and connect with people who may be interested in partnering up or working together down the line.
You can also get recommendations from friends or colleagues. The significant advantage of this strategy is simply the fact that any potential lender will more than likely know someone who has dealt with you before. This will make them much more comfortable working with you, as they’ll have an idea about how you conduct business before they decide to loan you money.
Winding It Up
As you look for a hard money lender, take note that there are two types of hard money loans: seller financing or a bridge loan. The main difference between the two is how they’re repaid.
A more common bridge loan must be repaid in full within three to five years, with interest rates starting at 10% and possibly increasing after that time.
On the other hand, seller financing only needs to be paid back when you sell your house—with no interest owed for up to six months after closing (though it’s not uncommon for sellers to never collect).
To qualify for either option, you’ll need good credit and a down payment equal to 20% of the sale price. These loans are available to those without verifiable income and credit scores below 650, but you’ll need a larger down payment (35%) for these buyers—and interest rates can range from 12% to more than 20%.