The Top Tips for Hard Money Borrowers
The Top Tips for Hard Money Borrowers
Are you looking to borrow some hard money? If so, check out this guide to learn the top tips for hard money borrowers.
What comes to mind when you hear the term “hard money loan?” Many would think it’s illegal, loanshark level lending but that can’t be further from the truth.
Hard money loans are loans that you do as a last resort. They base their value on the collaterals instead of your credit score.
Understanding how hard money can work into your real estate business is crucial. It can help prevent problems in the future, but how?
In this guide, we’ll give you the top tips you can use to get successful hard money loans from money lenders. If you need a loan, these are ways you can do to protect yourself.
Here’s what you want to do:
1. Be Wary of Upfront Fees
One of the first things you need to be cautious about when starting a hard money loan is upfront fees. Many proper money lenders may ask for a third party to do an appraisal for your fix and flip. This is normal.
What is not normal are lenders who ask for payment upfront. Lending companies that ask for a type of due diligence are the ones to avoid.
When this happens, you as a borrower get nothing. You walk away with a few thousand dollars less as well. If they’re asking for more than half a percent (0.5%) of the total sum, this is a red flag.
Make sure to do you hard money loans with people you can trust. The preferred partners should ask for very little or nothing upfront. You are using your real estate as collateral anyway, so its value should be enough to cover the loans.
2. Deal Straight With Money Lenders Instead of Brokers
When you need a loan, many mortgage brokers may tell you that they are legit money lenders. There will be some who will omit the fact that they’re brokering for a third party.
You want to make sure that your hard loan is a direct deal with lenders rather than brokers.
You want to build a financial relationship between yourself and your money lending firm. If something goes awry, you know where and who to get back to.
Brokers have no powers and no decision-making capabilities. You want to talk to the people who decide the loan to make it more favorable for you.
Also, brokers tend to have a cut of the deal in the end. This may result in hard money loans that are not in your best interest. If you need a loan, taking it straight to the hard money lenders will net you the best results.
3. Find Lenders With Experience
When picking a lending company, you want them to specialize their products around hard money loans. Why?
A hard money loan is complex. It needs a different understanding altogether when compared to other loan types. You want your financing firm to know the ins and outs of hard money to get you the best financing.
This is why choosing money lenders with experience matters. They can facilitate loans to produce proper structures. Proper loan structures will lead to the best chances for success to all the parties involved.
4. Set Up Your Loan Exit Plan
When you need a loan, the number one thing you need to have is a loan exit plan. In many cases, people don’t have ways to exit the loan in a short time. This is problematic, as one of the parts that a hard money loan can cripple you are the high-interest rates.
Sure, you may have a problem flipping your real estate in time. What’s your exit strategy? Is it to finance hard money loans with another loan from other money lenders?
It’s crucial for you to have a way to pay off the loan in a short time. Your exit plan should take into account any possible delays in your real estate venture. This is vital to your success, considering many hard money loans have high-interest rates.
Don’t settle for one strategy either. You want to make sure you have a way to get out in any type of problem.
5. Don’t Underestimate To Prevent Cost Overruns
When you need a loan, you want to make sure the entire loan can cover as many scenarios as possible. Much like your exit strategy, having enough money from your money lender is essential.
In real estate ventures, you want to consider your project costs. It’s always vital that you do proper estimates, preventing cost overruns. This takes into account the increase in project costs among others.
Proper estimation should also take into account illness and injury. If the project stops because you or a crucial project member falls ill, you want to have enough to continue the job.
If you ask for rehab money and you go over the budget, that’s the problem. Where do you get the money for the contractor? You want to make sure you have enough to complete the project and then some.
6. Do Not Over-Leverage
Some people who go for hard money loans can fall into the trap of “over-leveraging.” Leverage means debt, so over-leveraging means you’re neck deep in debt.
Some people go for many different mortgages to buy a property and start rehabbing. The problem? You’ll pay for exorbitant interests that will be so high you’re only paying interest.
Make sure that when you need a loan from money lenders, you calculate the right amount of profit. If the interest rates are going to eat much of the profit, consider your loan options.
How Can You Succeed With Your Hard Money?
When looking for hard money, you want to know the best information that can lead to your success. You want to vet your money lenders to make sure everybody wins in the transaction. Steer clear of lending firms that need exorbitant upfront fees or other unscrupulous moves.
If you’re looking to buy a home and need the right money to do so, you need someone who can help. You need Orchard Funding.
Orchard Funding provides private real estate funding. We get you the hard money loans you need. Whether you plan to fix and flip or need to do construction, we can help.
Work with someone you can trust. Talk to us now and get the money you need from the ground up.