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  • Writer's picturePreston Morris

Hard Money Loans: Everything You Need To Know

Updated: May 4, 2022

A hard money loan is simply a short-term loan secured by real estate. They are funded by private investors (or a fund of investors) as opposed to conventional lenders such as banks or credit unions. The terms are usually around 12 months, but the loan term can be extended to longer terms of 2-5 years. Click here for more details Please!!

How to Get a Hard Money Loan: 7 Requirements

  1. Save up a down payment (plus fees). ...

  2. Set up an LLC. ...

  3. Find a reputable, local hard money lender. ...

  4. Prepare proof of income. ...

  5. Prepare your repayment strategy. ...

  6. Apply! ...

  7. Review the paperwork with an attorney.

How much do you have to put down on a hard money loan?

As for down payment, 20 percent to 30 percent of the loan amount is required. However, some hard money providers may require 10 percent down payment if you are an experienced house flipper. Most hard money lenders follow a lower loan-to-value (LTV) ratio, which is 60 percent to 80 percent.

Does a hard money loan require an appraisal?

Hard money loans for real estate usually don't require a full appraisal by a certified appraising company the way mortgages do, but that is an option in most cases if it's the valuation you are most comfortable with. It can take longer to get approval when you wait for traditional appraisal services.

Do you make monthly payments on a hard money loan?

Short-term hard money loans or bridge loans are typically interest only loans with a balloon payment for the full mortgage amount due at the end of the loan. ... During the first 10 or 15 years of a 10/30 or 15/30 mortgage, the borrower pays a monthly mortgage payment that includes both principal and interest.

Is it easy to get a hard money loan?

Despite the name, hard money can be easy to get — if you can make a big down payment and stomach higher interest rates and fees, that is. If you have a need for mortgage speed, a hard money lender may be the answer, as long you understand the terms of the loan and know what to look for in the fine print.

Who qualifies for a hard money loan? The main requirement for getting a hard money loan is having the required down payment or equity in a particular property to use as collateral for the loan. The minimum amount usually ranges from 25% to 30% for residential properties, and 30% to 40% for commercial ones.

Can you use a hard money loan to buy a house?

When you are just starting out, hard money loans allow you to purchase property with very little money of your own. Once you have established yourself as an investor, you may be able to secure a line of credit from a bank instead of using a hard money loan, which will have a much lower interest rate.

What are fix and flip loans? Fix-and-flip loans are short-term loans used by real estate investors to purchase and improve a property to then sell for a profit. These improvements range from minor renovations to a complete reconstruction of an existing home.

Is it easy to get a fix and flip loan?

Qualifying for a fix and flip is a lot easier than other more conventional loans. The private individuals or companies that provide these loans don't look at the borrowers as much as they look at the collateral for the loan – the real property.

Do banks fund fix and flips?

As a house flipper, you're essentially a real estate investor, and your income can be seasonal and irregular—because of this, most banks won't give you a business loan for fixing and flipping properties. ... Bank loans are generally long-term loans—and most flippers buy, renovate, and sell a property within a few months

What is the 70% rule in house flipping? The 70% rule helps home flippers determine the maximum price they should pay for an investment property. Basically, they should spend no more than 70% of the home's after-repair value minus the costs of renovating the property.

What is the 50% rule? The 50% rule says that real estate investors should anticipate that a property's operating expenses should be roughly 50% of its gross income. This does not include any mortgage payment (if applicable) but includes property taxes, insurance, vacancy losses, repairs, maintenance expenses, and owner-paid utilities.

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