How to Buy a BRRRR With a Hard Money Loan

What does BRRRR mean?
Use Hard Money to buy a BRRRR

“Buy, Rehab, Rent, Refinance, Repeat,” is a new initialism to describe a classic, real estate investment strategy. Savvy real estate investors have been employing this investment strategy for a very long time, so the concept of BRRRR is nothing new or innovative. But its importance to building a real estate portfolio cannot be understated.

When done correctly, a BRRRR can be an excellent way to build wealth over time from your real estate portfolio. In this article, we’ll explore why funding for a BRRRR is the fastest and easiest when funded with a hard money loan. We will also consider some pitfalls that should be avoided when funding a BRRRR purchase with hard money loans.

To cover the basics super quick here, the initialism, BRRRR, is a method that is described as follows:

Buy: Identify the property you want to purchase and buy it using a hard money loan.

Rehab: Renovate the property as needed .

Rent: Get the property rented.

Refinance: Refinance the hard money loan used for the purchase with a long-term, 30-year mortgage. By refinancing the current loan with a lower interest rate loan, called a “cash-out refinance,” you can take out a slightly larger loan against the property than what is currently owed to the hard money lender. These “cash-out” proceeds from the cash-out refinance loan serve as the down payment used to buy another rental property using a hard money loan.

Repeat: Do it all over again so you can buy more rental properties to add to your real estate portfolio.

Why Buy a BRRRR with Hard Money?

It can be difficult to find a bank loan if you don’t have experience with a BRRRR, in fact, most traditional mortgage companies are unfamiliar with BRRRRs. Using a hard money loan to buy a BRRRR can be a great way to get started in the world of real estate investing if you don’t have the credit, or if you don’t have experience. Many hard money lenders will lend to borrowers with bad credit, some do not require income documentation, and still others will lend to real estate investors with no experience. With a hard money loan, you still may need to bring in a solid downpayment in most cases.

Another challenge that people face is getting a bank loan quick enough to be able to purchase the property. Particularly in a competitive market with lots of investor buyers, a bank loan can be too slow to compete with cash offers. In a sellers market for example, realtors are usually very selective about who they work with and won’t consider offers that are not cash offers.

A hard money lender can get you pre-approved to buy investment properties in advance of making any offers. Because hard money funding is so fast, it is similar to an all cash offer.

How to buy a BRRRR with Hard Money

When it comes to buying a BRRRR investment property with hard money, there are a few things you need to keep in mind. It’s important to note that, even though a hard money lender may not care about poor credit, not everyone will be approved for a loan. Make sure you know what the lender’s requirements are, and make sure you meet those requirements, before you apply. For example, some lenders will require prior real estate investing experience, while other lenders will lend to beginners. Understanding the various requirements of different hard money lenders will help you decide which ones you should pursue for a loan.

Shopping Around for a Lender

There are many, different hard money lenders out there that you can go to for financing, but it’s important to do your research first. Make sure you know which lenders are real and reputable first, by searching for every piece of information you can find about the lenders online and reading each of their online reviews. There are a lot of loan scams in which fake lenders pose as real lenders, just to scam you out of money.

If you can, get recommendations from other people in your target market who have successfully purchased BRRRRs using hard money loans. Make sure you search the lender’s name on search engines, check on sites like Ripoffreport.com and the BBB website, and look for “real” online reviews (it’s pretty easy to spot the fake ones). And then make sure you are comparing “apples to apples” when comparing among hard money lenders. For example, how fast can a lender fund and a lender’s appraisal requirements are two considerations when comparing among hard money lenders.

Providing Documentation
Hard money lenders differ greatly on what type of documentation each will require in order to fund your deal. Some lenders have almost no documentation, while others require a lot of documentation to get a loan. Do your research and make sure you know what the lender is looking for before you apply. This will make it easier, and much faster, to get the funding you need to purchase a BRRRR property.

What the Lender is Looking for
Lenders want to know that the property you are buying is in a desirable area where potential tenants want to live. All lenders prefer experienced borrowers, but that doesn’t mean that lenders won’t make loans to beginners.

And then there’s the property value. Because the property is the lender’s collateral for the loan, value is a very important consideration for a lender. Is the property worth what you’re paying? Or will you have to increase rents in order to achieve the property valuation you will need to do your refinance?

Many banks require a seasoning period, which is a period of time you must own a property before you can refinance your hard money loan with a long term mortgage. After the seasoning period ends banks require an appraisal to be performed and will only lend you a certain percentage of the appraised value. This is another reason why the property value is such an important consideration for both you and your hard money lender.

And, what if you don’t have a lot of cash to purchase a property? Despite the popular myth that you don’t need your own money to get started in real estate investing, yes, most lenders will require you to bring some money to the table. Even rehab lenders will still want you to show that you have enough liquidity to cover some of the repairs, or at a minimum, show you have enough cash to cover carrying costs.

How much cash does a lender require from a borrower? Some rehab lenders will require minimum borrower cash of 10-20% down of the total project cost if the property needs rehab. While many other lenders will only loan you a percentage of the purchase price for the property, usually between 70% to 90% of the purchase price.

Loan Denial for a BRRRR Purchase

In some instances, your loan might be denied by a hard money lender for one or more of the following reasons:

  1. They don’t like the deal for whatever reason.
  2. The home might be in a bad location, it may be priced too high, it may require too much work, or maybe the numbers just don’t add up.
  3. You don’t have enough experience, a solid plan, or enough money.

The Advantages of Buying a BRRRR with a Hard Money Loan

The Ease of the Application Process
Many hard money lenders make applying for a loan very easy. For example, our application process for BRRRR properties consists of a one-page form to fill out. Once we have the one-page form and a few photos of the property we can give you a yes or no answer on your loan request. And because hard money loans are primarily asset-based loans, these loans require far less documentation than a bank loan.

The Fast Turnaround Time on Funding
In competitive markets where good rental properties are in short supply, you need a lender who can fund quickly. This is probably one of the biggest advantages of buying a BRRRR with a hard money loan, which is fast funding. Look for smaller, lending companies because they can typically fund a loan much quicker than larger companies with high loan volume.

Many hard money lenders will use a local broker’s price opinion to determine property value rather than using an appraisal. Because appraisals can often increase the time it takes to close on a property, this is another advantage of using a hard money lender to fund your BRRRR purchase.

Low Cost to Borrow Short-Term
Interest rates can vary from 8- 12% and the rate depends on the lender. As compared with bank loans, these rates seem really high. But if you’re planning to keep the hard money loan in place for a short time until you refinance, this can be your lowest cost financing.

For example, say you purchase a BRRRR using a hard money loan with a 12% annual interest rate. You keep the hard money loan for 5 months and then you refinance into a 30-year loan with a much lower rate. In this example, the hard money loan only costs you 5%, not 12%. This is a small price to pay as compared with the cost of taking on a partner, or the drama that can come from borrowing money from family or friends.

The Disadvantages of Buying a BRRRR with Hard Money

There are far more advantages to using hard money than there are disadvantages. However, there are two important disadvantages that you should be aware of when buying a BRRRR with hard money.

Excessive Junk Fees
All lenders have junk fees associated with funding the loan, and these fees are different from loan fees, or points. Some hard money lenders have excessive junk fees, so make sure you are aware of all of the fees associated with the loan. Especially when selecting one lender over another, use the total fees as a tool for comparison among various lenders. One lender may have a lower interest rate than another, but his junk fees may be higher as compared with a lender with a higher rate and no junk fees.

Not Everyone Will be Quickly Approved for a Refinance Loan
One thing to be aware of when using a hard money loan to purchase a BRRRR is that not everyone will easily qualify for the refinance. This means you may hold the hard money loan longer than you anticipated. Because hard money loans are far easier to qualify for than bank loans, some real estate investors are confronted with a challenge when refinancing. Someone may not be able to refinance because of a low credit score, while others may not qualify from a DSCR perspective.

For example, if the price paid for the property is very high but the rental income is not high enough to cover the mortgage payment on the refinance. A real estate investor may be betting on future appreciation of property value and is willing to take a loss on annual rents. But banks like to see the rental income is enough to cover the mortgage payment, taxes, and insurance. If the rental income doesn’t cover all of these expenses, a bank will look at your personal income to cover the loss. If your personal debt to income ratio is high you may have trouble qualifying for the bank refinance.

If you are unable to refinance quickly, this could leave you stuck paying a higher interest rate on a hard money loan for much longer than you expected. In the worst case, you may need to sell the property if you are unable to refinance out of the hard money loan you used to purchase it.

Prepayment Penalties
Some lenders require that you keep the loan for a minimum period of time before you pay it off. Always ask your lender if there is a prepayment penalty on the loan, sometimes this is called a guaranteed interest period. If there is a prepayment penalty, it is usually the sum of the interest from the day you pay off the loan through the lock out date. Some hard money lenders want a minimum of a three month loan term, while some want a minimum of six months.

You’re Approved for a BRRRR from a lender. What’s next?

Once you’ve found a hard money lender that has approved your purchase of a BRRRR property, then what’s next?

-Plan Your Exit Strategy: Make sure you qualify for the refinance to take out your hard money lender. What is the seasoning requirement of your take-out lender? Will the property value be high enough to pay off the loan and cash out for your next purchase? Does your rental income cover your loan payment, taxes, and insurance?

-Start Looking for Properties: Once you’re approved by your hard money lender and you’re 100% certain you can qualify for the refinance, it’s time to start looking for properties. Make sure the properties you are looking at will meet your hard money lender’s requirements. Really understand the property value, look at market comps, look at market rents, make sure you’re not overpaying for the property. And don’t make assumptions about rents, make sure your projections are accurate. And then finally, make sure your projected rents will cover the loan payment on your hard money loan.

Build Wealth Faster with BRRRR Properties
When done correctly, a BRRRR can be an excellent way to build wealth over time from your real estate portfolio. Using a hard money loan to buy a BRRRR can be a great way to get started in real estate investing if you don’t have the credit, or if you don’t have any experience. And by using hard money loans to acquire BRRRR properties, you can scale your real estate portfolio faster, and as a result, you will build your wealth faster.

If you’re looking for a BRRRR loan, reach out to us to discuss your financing options.

 

5 Reasons You Need a Hard Money Loan (To Buy A House)

In today’s competitive real estate market, a hard money loan can give you that competitive edge to buy an investment home.

A hard money loan is a great way to get the home you want without having to wait for conventional loans. The hard money loan can provide you with all of the cash needed to buy the house, without too many hoops to jump through, such as proof of income, or credit checks.

Hard Money Loans Facilitate Cash Deals

Cash is king in a competitive real estate market. Oftentimes, the seller will accept a cash offer over one that needs traditional financing. Hard money loans come with quick processing times, which is quite the opposite of a traditional mortgage.

You Don’t Have to Have Great Credit

One of the main benefits of hard money loans is that many hard money lenders will not perform credit checks or have the typical bank, qualifying standards, so they can be a good option for people who don’t have an extensive personal credit history or have poor credit.

It’s also harder to get rejected when applying for hard money loans because they’re based on physical collateral such as property equity and not always on paper qualifications such as credit scores or income.

You Need to Close Your Loan Fast

Hard money loans can close in as fast as 24 hours. Instead of getting an appraisal which can take weeks, most hard money lenders will use a broker’s price opinion of value (BPO) to gauge the true market value of the property being purchased. You can get hard money loans in as little as 24 hours, but you need to have the property under contract and a pre-approval with a hard money lender.

Buying home with hard money
The Lost Opportunity Cost of Not Doing the Deal

When you’re considering a hard money loan to buy a house, it’s important to think about the opportunity cost of not doing the deal, rather than looking at the interest rate or loan fees. The opportunity cost is the amount of money you could lose by not buying the property.

For example, if you have the ability to make a $50,000 profit on a fix and flip, is it worth the cost of paying 3-4 months of interest? Many successful real estate investors certainly think so!

You Don’t Want a Partner

When you’re flipping a property or buying a property to rent, you don’t want, or need, a partner. You’re the one in charge, and you’re the one who’s going to make the decisions. If you have a partner, you’ll have to split the decision-making and the profits (or losses).

With a hard money loan, you’re the one in charge. You can make the decisions about what properties to buy, how much work to do on them, and when to sell. You don’t have to worry about someone else making decisions that could hurt your bottom line.

Conclusion

Hard money loans are great because they come with quick processing times and often, no credit checks. They can also close in a matter of days sometimes, which means you don’t have to wait weeks or months to close on your deal. A hard money loan might be the perfect solution if you’re looking to purchase a house on your own terms, without having partners, or needing any other type of financing. You just need a good property with equity that can serve as collateral for the loan.

Let us know how we can help! We’ll work closely with you every step of the way so that this process goes smoothly. Reach out to us today to get preapproved to buy your next investment property!

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5 Hard Money Lending Factors We Consider

The five most important factors that a hard money lender will look at when deciding to give you a loan are the property details, the value, how much cash you have, your experience level, and your exit strategy. It’s important to know these factors in order to get approved for a hard money loan!

What’s a Hard Money Loan?

Hard money loans are a type of financing that is used to purchase real estate investments, or to meet short term loan needs. These loans are primarily asset based loans which means that loan approval is not contingent on a borrower’s credit score like traditional loans.

Unlike a conventional loan or other loan products, a hard money loan comes from private investors. Hard money loan rates might be at a higher interest rate than traditional loans, but they offer advantages to those that know how to use them correctly. Hard money loans can be a real estate investor’s best friend because they help to increase wealth faster.

The property details we need for a hard money loan

The location of the investment property is important when applying for a hard money loan. Is the property in a prime area, in the suburbs, or in a rural location? Some lenders will not lend on properties in rural locations or in cities that do not meet a minimum population size.

What other property details is a lender looking for? The property description. What is the property types? Is it land, residential, or commercial. If it’s a house, provide the square footage, the number of bedrooms, bathrooms, the lot size, the number of garage spaces, and the year built. If you’re renovating the property, what changes will be made to the current layout?

Real estate investors should have all the above information when looking for hard money loans. Make sure to find out if the property description will fit the the hard money lender’s criteria.

How much cash can you bring in?

A hard money lender will also look at how much cash you have to bring in as a down payment on the purchase of a property. This is known as the loan to value ratio. Hard money lenders will usually loan money to someone who can bring in a down payment that is at least 10-20% of the value, or 10-20% of the purchase price.

Real Estate Investing Experience

The lender will also look at how much experience you have and your track record with managing real estate. You need to be able to demonstrate that you know what you’re doing or that you have a qualified team in place to help you.

If you’re looking for funding on a fix and flip property, hard money lenders will also ask about your past performance in house flipping. Do you have a history of rehabbing the homes and reselling them?

Some lenders will offer lower interest rates if you are experienced in house flipping. Private lenders want to be sure they can get their loans repaid without hassle. The more experience, the better.

Property Value

Hard money lenders also look at the property value and how it compares to the total purchase price. It’s important for a hard money lender to know if you’re going to be able to make a profit on this investment property.

The market value of any investment property is determined by comparing its size, age, location, condition, and features with the prices of other properties in the same area. Here are some things to keep in mind as well:

How much does this investment property sell for? What is the cost per square foot? If this is a fix and flip, what will (ARV) after repair value?

What’s your Exit Strategy and plan for paying back the hard money loan?

A hard money lender will ask you how long you need the loan for, and how you plan to pay the hard money loan back.

What does your plan look like if the value of the house goes down, if it needs more work than expected, or if your tenant loses their job? What happens if one of these circumstances happen after you’ve already bought the property?

Remember that hard money loans are short term loans with higher interest rates than traditional bank loans. These loans can get costly if things don’t go as planned.

Conclusion

These are the five main factors to consider if you’re looking for an easy way to get a hard money loan. These hard money lenders work differently from a traditional bank and you need to know the basics of how these loans are different.

All of the factors can affect the average interest rate and loan amount. Hard money lenders expect their money to be paid back in certain amount of time. The interest rates might be higher than a personal loan or traditional mortgages, but most of the time the credit score is irrelevant. Now that you know all of these things it will be easier for you to get approved for a hard money loan.

Hard money lenders can fund much quicker than a traditional lender. Especially big companies like Rocket Mortgage, they can take forever to fund a loan!

We recommend that you talk with someone from our team about how we can help. If you aren’t ready yet, check out some videos we’ve made for you to help answer some of your additional questions.

We tailor our hard money loans to meet your investment goals and will work with you every step of the way. Our expert staff is here to help you succeed in real estate investing, so don’t hesitate to contact us if you have any questions or concerns. Remember, hard money doesn’t need to be hard!

You should use a hard money loan for your real estate fix & flip. Here’s why!

Flipping houses can very lucrative if you know how to do it right. But funding flips is the most important because you can’t do fix and flips without the money, right? Real estate investors who are buying fix and flips with hard money loans know that it’s a great way to make money and build wealth fast.

Here’s what you need to know if you’re considering using hard money loans for your next fix and flip.

Real estate investors have limited funding options to choose from when buying investment properties because good deals don’t wait for bank loans or appraisals. This short article will focus on hard money loans and why they are such an attractive option for investors who are interested in doing fix and flips.

What’s a Hard Money Loan and why would you want one for a fix and flip?

A hard money loan is a type of loan that is very different from traditional financing options like conventional loans, or bank loans, because it funds quickly and with less requirements. Example: Most hard money lenders don’t have a minimum credit score to qualify. But like any loan, the borrower agrees to pay back the loan with interest. The interest rates for fix and flip hard money loans range from 10% to as high as 18%.

Why are Hard Money Loans Attractive to Investors for Fix and Flips?

Hard money loans are attractive to real estate investors who do house flipping because they fund quickly and there’s not a lot of hassle in getting the funding. Many savvy investors regularly use hard money to buy a fix and flips because it can fund much quicker than a conventional mortgage loan which can drag on for months.

How to Get a Hard Money Loan for your Fix and Flip

To get a hard money loan, you’ll need to find a hard money lender who is willing and able provide you with the funds that you need for the fix and flip. You’ll also need to be pre-approved by a lender before the lender will agree to loan you the funds, so it’s important that you get started looking for lenders right away.

If you are able to find a lender who is willing to lend you money on a property purchase, they will need the information for the property you are looking to purchase to give you final approval. Most hard money lenders can fund quickly in 3-5 days if there’s no appraisal requirement. Appraisals tend to slow down the funding process so not all hard money lenders require  appraisals determine property values.

The Benefits of Using a Hard Money Lender vs Traditional Financing

The primary benefits of using a hard money lender versus using traditional financing include: the speed of funding, no minimum credit score requirement, and no hassle loan approvals. The speed in obtaining financing can often be the single most important factor in being able to buy a property at a good price and make money!

When should I consider borrowing from a Hard Money Lender instead of going through more traditional means like banks or mortgage companies? In a competitive real estate market, unless you are operating with a lot of cash on hand, you need a loan that can fund as quickly as cash. Many sellers won’t even look at an offer to purchase unless it’s a cash offer. Because our fix and flip loans can fund as quickly as cash, they are essential for funding your property purchases in a competitive market.

explain hard money for fix and flips
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Common Misconceptions About Hard Money Loans for Real Estate Deals

There are a few misconceptions about hard money loans that need to be cleared up and these include:

– Private money loans are offered only to people who have poor credit and cannot qualify for more traditional types of financing. Wrong. Most hard money lenders don’t have a min credit score. Not all real estate investors have poor credit, in fact, many real estate investors who use a private lender actually can qualify for a bank loan.

– Hard money lenders are all loan sharks that charge excessive interest rates. Wrong. Hard money lenders are debt partners for real estate investors, providing the capital they need to make money in real estate investing.

– Hard money lending is the most expensive option for funding investment property purchases. Wrong. Using your own cash  is your most expensive option for funding your fix and flips. And a partnership is also much more expensive than a hard money loan.

While it’s true that many hard money lenders don’t have a minimum credit score requirement, or run a credit check, that’s not the reason real estate investors choose hard money. Real estate investors can use hard money loans on multiple projects simultaneously, building their real estate portfolios faster.

What kind of down payment is needed for flip financing?

Generally, you’ll need at least 20% of your total project cost to get a hard money loan for a fix and flip. But it really depends on each private money lender’s requirements.

Draw Schedule for a Fix and Flip

If a hard money lender provides funds for the repairs to a property, these funds will often be held by the lender in an account called a “repair escrow.” The lender will then release the repair money in draws, or disbursements, as the repairs are being completed.

In order to communicate to the lender how the funds should be disbursed, expect to fill out what’s called a “draw schedule.” A draw schedule should match the bid for repairs, with a cost next to each item, and a grand total at the bottom. But the only difference between a bid for repairs and a draw schedule is that a draw schedule outlines the work in phases so that a lender knows when funds should be disbursed, and who funds should be disbursed to. The lender will disburse the funds to the borrower in “draws” as the repairs are completed, according to the draw schedule.

When to Pay Back the Hard Money Loan on a Fix and Flip

A borrower will need to pay back the hard money loan on a fix and flip property when the property is sold. Some hard money lenders require monthly payments until the loan is paid back, while some lenders do not require monthly payments.

What additional information do you need to obtain a loan for a fix and flip?

Purchase price and loan amount: How much of a down payment will you need?

Rehab and renovation costs: Projected rehab costs can be found by contacting a local contractor and asking them to provide an estimate in writing. Does your lender provide funding for rehab costs?

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Rehab time frame: You want your flip to be completed quickly so you pay less interest to your hard money lender.

After Repair Value: What is the property value after the renovation is completed?

Worst Case Scenario: What’s your exit strategy if things go south? If you get injured, go over budget, or the house doesn’t sell in a timely manner, how are you going to pay pack the loan?

Loan to value: The more money you bring in, the better your chances of obtaining the lowest interest rate.

Experience: Your experience in real estate investing can have an impact on the lender’s decision.

Conclusion

If you’re considering a fix and flip property, hard money is the best option for financing your project.

We’ve outlined some important considerations below that should help you decide whether this route will work for you.

Are all of your questions answered? Remember, no question is a dumb question when it comes to hard money loans, so reach out to us to get more information about how our hard money loans work.  You can apply for a fix and flip loan here.

How To Use Hard Money For An All Cash Offer

Win with hard money in this crazy real estate market

hard money vs cash real estate

In today’s ultra competitive market, you can use hard money the same way as you can use cash. Cash is king in the world of real estate!

The sellers who accept cash offers are seeking a quick and easy sale of their property and do not want to wait for the slow loans of their buyers to fund. By making cash offers using hard money, it can increase the odds of getting an offer accepted on a home purchase.

A hard money loan is similar to an “all cash offer” to the seller because of the speed of funding. You can close a hard money loan in as fast as 24 hours in some cases.

Real estate investors bypass traditional mortgage lenders all the time by making cash offers using hard money.

Why hard money is same as a cash offer on house

When purchasing a property, making an all cash offer can be the key to getting a good real estate deal under contract. But if you don’t have all the cash, how do you use a hard money loan like cash?

Hard money loans are asset-based loans. This means they are not approved based on your personal credit score but rather based on the property that is used to secure the loan. And once approved, a hard money loan can typically fund in less than a week, just like cash. This is why a hard money loan acts the same as, or very similar to, an all cash offer

How to Write a Cash Offer Using Hard Money

Here’s how a buyer can make a cash offer using a hard money loan in 3 easy steps:

Step 1. Get pre approved by a hard money lender

Step 2. Identify the property you want to purchase

Step 3. Submit your offer to purchase and write on the offer, “cash and hard money.” There is no financing or appraisal deadline. The settlement date would be shortly after the due diligence deadline ends. Suggest a title or escrow company as your settlement agent on the contract.

realtors and hard money
buy real estate with hard money

What Real Estate Agents Should Know About Writing an Offer Using Hard Money Loans

Realtors must know how to submit offers using hard money to help their clients get more properties under contract.

Here are 3 easy steps for a realtor to write an offer to purchase a property using hard money.

Step 1: Get a proof of funds letter from the chosen hard money lender.

Step 2: When writing up the offer, under the section that lists how you intend to pay for purchase. Write in the amount of the earnest money deposit.

Step 3: Then write, “N/A” next to “New Loan”. Then write the words “cash and hard money” next to where it lists the balance due in cash at settlement when you subtract the amount of the earnest money deposit.

Step 3: In the “financing and appraisal condition” sections of the contract, make sure it says that the purchase of the property is NOT contingent on financing approval, and is also NOT contingent on an appraisal. Most hard money lenders will pre approve you for a purchase and most do not require an appraisal. Make sure your hard money lender does NOT require an appraisal. If the lender does require an appraisal, it no longer would be the same as cash. Because it takes much longer to get an appraisal, it won’t be able to match the speed of a cash purchase if there’s an appraisal requirement.

Paying back the loan

A hard money lender will give you a specific loan term, which is the time you will have the loan until it is to be paid back. For example, a 6 month term, a 12 month term, or a 24 month term. You will make monthly payments to the hard money lender for the duration of the loan term, or until the date until you pay the loan back.

You only pay interest as you go, so you only owe interest for the time you have the loan. For example if you have a loan term of 12 months but you pay the loan off in 9 months, you only pay interest for 9 months for the time you have the loan. Most lenders do not have early pay off penalties but always ask if there is a penalty should you pay the loan off before the due date. Learn more about ext plans here.

What are the Closing Costs and Interest Rates?

A borrower can expect to pay closing costs of between 2-3% of the loan amount on average. Also part of a borrower’s closing costs would be a loan origination fee or loan points. The interest rates on a hard money loan usually depend on the size of the down payment on a purchase and range from 9% to 12%.

Conclusion

The hard money loan is a cash offer on a house. You don’t need to worry about credit score, long wait times for funding, or other traditional mortgage requirements that banks typically require.

It’s easy for real estate agents and sellers to get started with a hard money loan through our team of experts a Private Money Utah!

If you’re ready to buy now but can’t wait weeks or months while waiting on a bank approval, contact us today and let’s get the process started together!

Let’s talk more about how we could help you pay back this quick closing fund as fast as week by providing an affordable monthly payment option.

Contact us today so we can answer all your questions before making any long term commitments.

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Bridge Loans – The Straight Facts

We give you the straight facts on what a bridge loan is, how it works, and whether or not it’s right for you

how bridge loans work
what’s a bridge loan

Bridge loans are most commonly used by investors looking to purchase properties with cash and then flip them quickly. Bridge loans can also be used by home buyers who need to buy a home quickly, or to buy a home before selling their current home.

There are some implications of using a bridge loan that you need to understand. In this guide we will cover what a bridge loan is, how it works, and what questions to ask your lenders.

What is a Bridge loan?

A bridge loan, or a “bridge financing” comes from a private funding source rather than from a bank or credit union.

This type of short-term loan can be helpful when you need money fast, such as when you are purchasing a new property.

These loans come with higher rates because they fund faster than traditional loans and because they are loans based on the collateral rather than on your personal credit or income. This means there is no minimum credit score or income ratio to qualify.

Bridge Loan Examples

Bridge loans are probably best-known among real estate investors as a tool for buying properties quickly. These types of loans are also used by people who are looking to buy a home before their current home sells. Here are some other examples of when bridge loans are most commonly used:

  • To purchase a property at an auction
  • To renovate a property or make repairs to a property you already own
  • To purchase a “fix and flip” property
  • To purchase a residential property or a commercial building that will be leased out for income
  • To purchase a building that will be occupied by the borrower’s business
  • To buy a partner out of a property
  • For short-term liquidity for business purpose or for other short-term purpose|

Why would you want a bridge loan?

  • Bridge loans can be helpful when you need money fast
  • If you want to buy a new home before your current one sells. You must have sufficient equity in your current home in this case.
  • You want to purchase an investment property to renovate for resale or turn into a rental unit.
  • You want to buy out a partner or family member in a property. You must have sufficient equity in your property for a bridge loan to work in this case.

What types of lenders offer bridge loans?

  •  Private Money Lenders sometimes referred to as Hard Money Lenders
  • Private Mortgage Companies
  • Investment Banks

Click here for a bridge loan

Pros and Cons of Bridge Loans

The Pros

Speed of Funding

You can get this loan from a private money lender MUCH faster than a bank or credit union. These loans are not to be confused with a personal loan or second mortgage.

No Min Credit Score or Income Qualification

You don’t need to have a good credit score to get a bridge loan because this in an asset based loan. Most bridge lenders also do not document your income. However, sometimes a bridge lender may want to see your credit report before approving the loan to look for judgements or liens that may attach to the property.

The Cons Of Bridge Loans

Higher Interest Rates

Bridge loans are risky for the lender, as there is no guarantee that they will be repaid. This is why they carry a higher interest rate than traditional mortgages. Getting stuck in a bridge loan for longer than desired can put a strain on your finances because of the higher interest rate.

Longer than Anticipated Hold Times

In addition to these risks, borrowers may have a difficult time qualifying for traditional mortgage when they want to pay off the bridge loan.

And then if you use a bridge loan to purchase a home before your current home sells, you will be carrying two mortgages. Can you afford both mortgages if your current home takes a long time to sell?

How Can I Buy a Home Before My Current Homes Sells?

The equity in your current house can be used as the down payment and collateral on a new house purchase. It’s similar to a home equity loan except no cash is taken out of the existing home. The lender just uses the equity you have in your old home as the down payment for the new home purchase by putting a lien on your old house until it sells.

Will you have two payments with a bridge loan?

Yes, you will have two mortgage payments if you are using a bridge loan to purchase a new home before you sell your old one. That is, if you have a mortgage on on your current home. You will have your current home mortgage and your bridge loan mortgage until your old home sells.

What’s the advantage of a bridge loan in a seller’s market?

If you are buying a property in a seller’s market and there is no time to wait 30-45 days for traditional financing to fund, a bridge loan may be able to help you buy that property quickly.

A bridge loan has a competitive advantage in a seller’s market because it has faster close times and less requirements for funding. You can also make an offer to purchase with no contingencies when you use a bridge loan to fund it.

buy house with bridge loan

How to Write a “Contingency Free” Offer When You Haven’t Yet Sold Your Current Home

Typically a home buyer needs to sell their home first to get approved for a mortgage loan so with an offer to purchase they may include a contingency for selling their current home. In a seller’s market, this type of offer is certain to be rejected.

Bridge loans gives you a competitive advantage by allowing you to purchase a home without selling your home first because you can write an offer to purchase with no contingency for selling your home first. This a very appealing to the seller of a home who might have multiple offers because they are likely to choose the offer which can close fastest.

How do real estate investors use bridge loans as an advantage?

A bridge loan can be used as a form of “cash ” to close quickly on investment properties that are being purchased at a bargain price. Rental property investors, commercial real estate investors, and “fix and flip” real estate investors use bridge loans to purchase properties quickly, very similar to purchasing with all cash.

It can take between 2 weeks to 2 months to secure funding from a traditional bank or credit union. With a bridge loan from a private money lender, it can fund much faster, usually between 1 to 5 days. Because of the speed of funding, bridge loans often mimic cash transactions.

How much can you borrow on a bridge loan?

If you are looking to finance a property using a bridge loan, the amount you can borrow is determined by the “loan to value” limits of the lender. The higher the loan to value ceiling of a lender, the more you can borrow. For example, does your lender lend at 50% loan to value, at 80% loan to value, or somewhere in between? Find out the loan to value limits of your lender, in order to determine how much you can borrow.

How long does it take to get a bridge loan?

bridge loans typically fund much faster than a traditional home mortgage. Bridge financing can take from 24 hours to 2 weeks to fund. But remember, it doesn’t always depend on the speed of the lender, it also depends on the speed of the other parties involved in the transaction who can slow it down.

How Bridge Loans differ from a HELOC or Home Equity Loans

There are a few alternatives to bridge loans. A popular alternative is to use a home equity line of credit (HELOC) as a 2nd mortgage on your home. This will allow you to take out cash equity in your home to use as a down payment to buy another property.

A HELOC is a 2nd position loan that goes in a 2nd lien position behind the 1st mortgage loan on the property.

When you get a HELOC, the lender puts up the money for what you want, and later, you pay off what was borrowed plus interest.

How long can you have a bridge loan for?

This is a question that you need to ask your specific lender, what is the term of the loan? How much time until you have to pay the loan back, in other words. Some lenders only offer a 6 month loan term.

This means that the loan must be paid back in 6 months. But on the other side of the spectrum, there are bridge lenders that offer loan terms of 5 years. In you need 9 months or so to get a bridge loan paid back, a loan term of 6 months is not going to work for you. You’ll want to have a plan for long term financing or permanent financing.

What are the fees associated with Bridge loans

There are loan fees, sometimes called “loan points.” A point is a percentage of the amount borrowed, that is paid to the lender.

There are also miscellaneous fees and closing costs that a lender will charge, these are called “junk fees” and are sometimes labeled as legal fees, processing fees, underwriting fees, review fees, etc.

How much down payment do I need?

Typically, the more money you have for a down payment, the lower your rate. Ask your specific lender about down payment requirements so you are prepared. In the case where a home buyer is using a bridge loan to buy a new home before they sell their current one, if they have equity in their current home, they don’t need a down payment.

Are Bridge Loans Interest Only?

Yes, they are interest only loans. This means that you will not pay towards the principal balance on your bridge loan, but instead your monthly payments will go towards the accrued interest.

What are bridge loan interest rates in 2021?

Bridge loan rates can be at a lower interest rate between 7-10%, or at a high rate between between 12-18%. The final interest rate depends on the quote given to you by each lender.

Ask your specific lender about their criteria for determining the interest rate for your bridge loan.

How do you calculate your monthly payment?

To calculate your monthly loan payment you will need to find out what the loan amount will be. Once you know your loan amount, you multiply it by the interest rate. Then you take that number and divide it by 12 months. For example:

Loan Amount: $175,000

Interest Rate: 10%

$175,000 x 10% = $17,500

$17,500 / 12 months = $1,458.33 is your monthly interest only payment

What happens if you are late with your bridge loan payment?

Just like with any loan, if you are late, the lender will almost always charge a late fee, unless there is an extenuating circumstance. Some lenders will charge excessive late fees, and a higher interest rate, if you are late on your payments.

Look for late payment penalties and default penalties in your promissory note. The promissory note is the loan document that a bridge lender will have you sign at the loan closing.

You need to carefully read the loan documents that the lender is going to have you sign before signing them to make sure you understand what the terms of your bridge loan. That way there are no surprises and you can avoid to pay high interest rates.

Do you need to get Private Mortgage Insurance?

No, you don’t need private mortgage insurance.

How much can you borrow with a bridge loan?

A bridge lender will give you a loan amount as a percentage of the value or a percentage of the purchase price.

Most bridge lenders will lend you a maximum of 65-80% of the value, or purchase price. There are some hard money lenders that will lend at a higher loan to value such as 95%-100% of the purchase price.

The maximum amount that you are allowed to borrow will be determined by the specific lender.

What is an exit strategy for a bridge loan?

The most common exit strategy for a bridge loan is to pay it off with a bank loan, a loan from a credit union or another financial institution. This is a called a “refinance.” When you refinance a bridge loan, you are paying it off with another, longer term loan.

If you are using a bridge loan to buy a new home before your current one sells, your exit strategy for the bridge loan will be to sell your current home.

Depending on the equity you have in your current home, you may be able to pay the bridge loan off in full, or you may need to refinance any balance due with your bank or credit union.

For example: You sell your current home for $500,000. You owe $250,000 on the 1st mortgage. You would pay off the 1st mortgage when your current home sells and have $250,000 in proceeds that you would use to pay off the bridge loan. If there is a balance left on the bridge loan after you pay it down with the $250,000 proceeds, you would refinance that balance with a long term loan from your bank or credit union.

Should you get a Bridge loan?

A bridge loan is an excellent option for those who need alternative sources of funding, particularly for a short period of time.

Contact a bridge lender like us to find out the requirements, the rates and fees, and understand all of the other terms and conditions. Start to build your list of bridge lenders. Should the right situation come along where a bridge loan could be an option, you will be glad to have your list of bridge lenders on hand!
Click here for a bridge loan

Mortgage Fraud: Scammers Get Victims With This Little known Way!

Mortgage fraud is very common, and when you don’t know what you’re doing in real estate, you can easily become a victim! Learn how to avoid mortgage fraud schemes and how to spot the red flags of a fake lender.

How to Prevent Mortgage Fraud

I want to tell you a tragic story that I heard recently about a beginner real estate investor who lost $205,000 to a loan scam before he even purchased a property.

Yes, this is a true story, so hang out a minute to hear what happened. For any of you out there reading this, please share this with any novice real estate investors that you know that need to hear this story.

It could save them tens of thousands of dollars and could prevent mortgage fraud. Education is one of the most valuable tools to fight mortgage fraud. So what happened?

How Peter Fell for a Fraudulent Lender

Peter is a new real estate investor looking for properties to buy. However, Peter did not know that when you buy a property, that you always use a third party to handle the money part of the transaction. This third party is the licensed title company and/or escrow company.

Mortgage scheme
Avoid Mortgage Fraud

A title or escrow company takes the money from the buyer and transfers it to the seller, as a go-between, and as a neutral third party. Peter did not know enough about how real estate transactions work to understand where the money goes on a purchase. He was just getting started looking at properties.

Once Peter found a property, he started talking to various lenders, and that’s where he encountered this loan scam. The loan scam was a fake lender who had no intention of making Peter a loan, but was just posing as a legit lender to try and get a newbie like Peter to pay him an upfront fee. But this wasn’t your typical “upfront fee” loan scam.

This Fraudulent Scheme Gets Worse!

Hang on for another second to discover why the scam that was perpetrated on Peter was much, much worse than the most common loan scam out there which is the “upfront fee scam.” But first, you may wonder, what is an upfront fee scam?

Let’s back up. Some lenders take upfront fees in advance of giving you the loan. It could be called a legal fee, administrative fee, etc. Upfront fee scam lenders don’t make loans, they just take upfront fees, never funding the loans. Once a fake lender gets the fee upfront from a borrower, the fake lender always disappears. And Peter fell right into the trap.

Peter was duped into giving this fake lender an upfront fee of $5,000 on the property that he was trying to buy. It was too easy! The fake lender realized that Peter didn’t understand real estate transactions at all. He then convinced Peter to wire him the down payment on the property, which was $200,000.

Remember This One Tip to Avoid Being Scammed!

Because Peter did not understand real estate transactions, he did not know that you NEVER, EVER wire a lender your down payment on a property purchase. You ALWAYS wire your down payment to a licensed title or escrow company. Just to reiterate, you NEVER EVER, under any circumstance wire your down payment to a lender on a new purchase.

So Peter wired the down payment of $200,000 to this fake lender. Then what happened?

Poof! The fake lender promptly took the funds, closed the account, and he was gone, that was it!

Peter lost $205,000 before he ever did his first real estate deal. Again this is a true story! So what’s the lesson learned?

Never wire a lender upfront money! But more important than that, never ever, for any reason wire a lender your down payment money on a purchase.

Avoiding Mortgage Fraud: Red Flags To Watch For

Learn to spot a fake lender! Look for real lender reviews and check credentials anytime you’re working with a lender that was not referred by a close friend, family member, or business partner.

Your down payment funds should always be wired to a licensed title company, or licensed escrow company. When in doubt, get your own real estate attorney involved, or hire your own title/escrow company to represent your side of the transaction.

And then, only wire your down payment funds to your appointed agent.

You can easily verify if a title or escrow company is licensed by checking with the regulatory body in the state where the title or escrow company is located. When in doubt, just hire your own real estate attorney, or your own title or escrow company in the city where the property you’re buying is located.

This was a hard lesson for Peter to learn. Being a newbie real estate investor, he didn’t understand enough about real estate transactions to know that he should NEVER wire his down payment money to a lender. Do you know any newbie real estate investors that could fall for this scheme?

Don’t assume someone knows! Go ahead and share this post with them. It could stop someone out there from perpetuating mortgage fraud.

Again, even if this seems like common sense to you, don’t expect that everyone out there understands lending scams and how real estate transactions should work. Share this post with them! You may be glad you did.

The Rise in Real Estate Wire Fraud

Real Estate Scheme: The Money Deposit Scam

Sadly, Real Estate scams are common. A popular real estate scheme called an “Earnest Money Deposit Scam” that you as a real estate investor should be aware of. These scammers will fraudulently try to sell you a house that isn’t fore sale and commit wire fraud.

This is not a new scam, but these types of scams will start to happen more often as more short sales and bank owned properties are expected to hit the market later this year. How does this scam work?

An agent claims to have a listing for a short sale, a probate, or other type of distressed property, but the property cannot be shown. Viewing is through a drive-by only, no interior access to the property is available.

Explaining wire fraud in Real Estate

The agent immediately starts to pressure you hard for a large earnest money deposit, usually in the $5,000 to $10,000 range. You take the bait and wire to the agent’s escrow account. As with most short sale or bank owned properties, the process can take several months, and the agent assures you that he or she is working towards lender approval – it is just taking time. When the communication slows down or stops, you begin to get concerned.

When you call, the number is disconnected. What happened? The agent and the listing were both phony. How then, would you avoid falling victim to this Earnest Money Deposit Scam?

How To Protect Yourself From Real Estate Fraud

Be extra cautious of short sales, probates or other distressed property sales when it comes to giving earnest money deposits. With so many US homeowners behind on their mortgages, this type of scam will become more frequent as real estate investors are eager to find distressed properties to buy in the next year or so.

Be wary of properties offered for sale that are not listed and are unavailable for access with only a “drive by” viewing.

Check to see what type of escrow it is where you’re supposed to wire your earnest money deposit. Is it broker-owned, is it independent, or is it controlled through a title company?

Depending on the type of escrow account that you’re supposed to wire to, check the license status of that escrow company on the government agency site responsible for licensing that escrow. If independent, check the status of the company on the Department of Business Oversight site for that state.

If controlled through a title company, check the status on the Department of Insurance site at the state level. And if a broker-owned escrow, check the status of the broker through the Department of Real Estate Website at the state level.

This earnest money deposit scam is certainly not a new scam. But it takes new victims when in a competitive real estate market or in a market with more distressed properties expected to be available, which could happen this year with so many homeowners behind on their mortgage payments.

Be aware of this real estate scam and share this video with other real estate investors that you know who are on the hunt for good deals. The next good deal may turn out to be a scam if you don’t know what to look out for!

Build Your Real Estate Portfolio Faster With Hard Money

How to build a real estate portfolio?

How do you become wealthy in real estate faster using hard money loans?  I’m going to tell you how the most successful real estate investors use hard money loans to build their real estate portfolios at lightning speed!

I was recently introduced to a real estate investor Natalie, her goal was to acquire 3 rental properties in 1 year. In the market that she’s looking to buy, it’s very competitive.

This means that unless she’s making cash offers, she won’t stand a chance at getting any good real estate deals. She has $300,000 of her own cash to work with. She’s looked at bank loans but banks would be too slow, she thought hard money loans were just too expensive.

So this ambitious real estate investor decided to try and purchase 3 properties without any loans, using only her $300K cash to buy ALL 3 of them.

But Natalie had a problem. The average price for a rental property in her target geographic area is around $200,000 per property.

To purchase 3 properties with an avg price of around $200,000 with all cash, it means Natalie will spend an avg of $600,000 combined.

So how will Natalie purchase 3 properties in her target geographic area, with only $300,000 cash?

Unless someone gifts her another $300,000, Natalie won’t be able to buy 3 rental properties in 1 year just using her own cash of $300K. Prices are just too high for the cash Natalie has available.

But Natalie did accomplish her goal of buying 3 rental properties in 1 year.

How? By using a funding source that is utilized by successful real estate investors. Natalie so quickly brushed off hard money loans as a funding source in the beginning because she thought they were “too expensive.”

By putting her own cash together with hard money loans, Natalie easily purchased 3 properties within a year. Using the leverage of hard money loans helped her scale faster and thus create more real estate wealth faster.

Natalie’s initial rejection of hard money loans came from her idea that these hard money loans were just too expensive. But what is the true cost of a lost opportunity in real estate because you were afraid to pay a higher interest rate?

A good deal in real estate that you could miss out on costs a lot more than a double digit interest rate. If your bank is offering you a really low interest rate but they can’t close quickly enough, how good is that bank loan? It’s worthless.

Hard Money Loan Terms

How To Build Real Estate Portfolio
build real estate portfolio with hard money

Hard money loans are such short term loans that you only pay interest for the time you hold the loan. Many real estate investors who use hard money loans to acquire rental properties, tend to pay them off with a traditional bank loan in 6 months or less. So if your interest rate on a hard money loan is 10% annually and you hold the loan for 6 months, it cost you 5% interest, not 10%. But regardless of the interest rate, no price can be set on a lost opportunity in real estate because you couldn’t act fast enough or because you didn’t have enough cash. Think about that.

Because hard money funds as fast as all cash, for Natalie it was the solution for her to achieve her desired real estate goals and build her real estate portfolio faster.

If you’re like Natalie and you have certain real estate goals but a limited amount of cash available then take a closer look at hard money loans. As I said, it is a funding tool used by successful real estate investors like Natalie.

How To Compare Hard Money Lenders

Download the Hard Money Decision Making Matrix: https://bit.ly/31abLI5 

How to Compare Your Loan Options Among Different Hard Money Lenders

You’re looking for hard money lenders and there’s a million hard money lenders to choose from. So how do you compare among hard money lenders?

Well, most people start with the interest rate and compare lenders using that metric only. Let me tell you, if you’re looking for a hard money loan based on price alone, you’re making a huge rookie mistake!

A guy comes to me the other day and he’s shopping for hard money lenders. During our phone conversation he interrupted me in the middle of the conversation to say, “I’ve already gotten a quote of 10% from another hard money lender.”

And then I asked him, “Your lender at 10%, what are his requirements for final loan approval?”

The guy answers, “I don’t know. “

And the I asked him, “How much is he going to loan you for the 10%?”

He replied with the same answer, “I don’t know.” This guy didn’t know anything about the loan amount or requirements to get that 10% loan. 
Not only was he wasting my time, but he was wasting his own time.

Don’t waste your time when you’re shopping for hard money lenders! If you want to find the right lender for your needs, I’m going to teach you how to compare and choose the right lender.

Using a Hard Money Decision Matrix

Write down, or type out, your biggest need for a hard money loan. And what do I mean by that?
What if you need to close in 3 days? Then your biggest need for that deal is the speed of funding.

And what if you don’t have any money to bring into the deal and you’re really low on cash? Well then your biggest need is finding a hard money lender with the lowest down payment requirement.And then what if you have bad credit and no income? Your biggest need is going to be a hard money lender that doesn’t base the loan approval on your credit or your income.

Now I want you to create what’s called a decision matrix. Look it up online. Studies have proven that if you write down all your options and have them in front of you, you can make better decisions.

That’s what I’m going to ask you do right now, create your own decision matrix. And on the left side of the chart I want you to list all your hard money lenders that you’re talking to. And then each column in the chart is going to be a factor that you’re going to use to compare your hard money lenders. There are a lot of factors that you can use to compare your hard money lenders but I’m going to talk about seven important factors.

What are the seven factors for comparing among different hard money lenders? They are.

  1. Method of valuation
  2. Speed of funding
  3. Requirements of funding
  4. Cash to close requirements
  5. Reviews about the lender
  6. Monthly payments required?
  7. Total cost of the loan

Let’s start with the first factor for comparing lenders, it is Method of Valuation.

This means, ‘how is the hard money lender valuing a property? Are they using an appraisal? And if so, what’s the cost and timeline for getting it? Is the lender using a broker’s price opinion, and if so, what’s the cost and timeline for getting it? Find out the answer to that question!. This is extremely important, as you’re going to find out shortly as we go through some of the other factors.

The second factor for comparing your lender is, the Speed of Funding.
Just because a hard money lender’s website says that they can fund in 5 to 10 business days, it doesn’t mean that they can actually do it.
And why? Because if a lender is going to require an appraisal as the method of valuation for example, there is no way that lender is going to be able to close your loan in 5 to 10 days. It takes 2 to 3 weeks to get an appraisal back in most cases.

The third factor to use to compare is, the Requirements of Your Hard Money Lender.

What are the lender’s requirements for loan approval? This is the one that is going to require the most research on your part. You need to find out ALL of the requirements of each lender and make a list for each.

Let’s say you decide to go with a lender with a low interest rate but you didn’t read all the requirements and do your research. You may eliminate all of the other hard money lenders from your list and then discover that you cannot comply with all of the requirements of the lender with the low interest rate. And then what? Unfortunately you’d be out of options and you’d be out of time!

So make sure you do your research and list out every, single requirement that each hard money lender has.

The fourth factor is, Cash to Close Requirements.

Ask yourself, ‘what is the lender requiring you to bring in as your down payment, plus any closing costs?’

Know what your cash to close requirements are, because if your biggest need is the least amount of cash to close, you may want to choose the hard money lender with the lowest cash to close requirement. For example, if you’re tight on cash then choose a lender that only requires a 10% down payment at a 12% interest rate over another lender that has an interest rate of 10.5% with a down payment of 20%.

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The fifth factor is, Hard Money Lender Reviews.

Look at the lender’s reviews. Do they have reviews? Are they good or bad? If they have no reviews, no go! Some fake lenders out there, they have no reviews. If they have no reviews, are you really going to trust that they can fund your deal when it matters? Also, watch out for loan scams in hard money. If it sounds too good to be true, it probably is!

Also, if a lender has reviews, those reviews will tell you a lot of things about lender. If you do your research and actually read the reviews, you’ll find out if a lender can really close in 5 to 10 business days like they claim on their website. Maybe you’ll read the reviews and find out it actually takes the lender 21 days or more to close rather than the 5-10 days they’ve stated on their website.

So make sure you know what the reviews are for each of these lenders that you’re looking into.

The sixth factor to compare among hard money lenders is, Monthly Payments Required?

Does the lender require monthly payments? Most hard money lenders do require monthly payments. And if they don’t, usually there’s some other factor that offsets that, such as the requirement of a larger down payment, or a requirement for a really high credit score.

And then finally, the seventh factor is, the Total Cost of the Hard Money Loan.
What is the total cost of the loan for each hard money lender that you’re talking to? For example, every hard money lender has an interest rate, loan points, and then some hard money lenders have junk fees.

So not only do you want to look at the interest rate and the points when you’re comparing your hard money lenders, but determine all of the fees that are going to be charged to you at closing and after you close on the loan.

If you don’t know what the total costs are for each of the hard money lenders that you’re comparing in your matrix, you might choose a lender because they have lower points, only to find out that they have a $1,200 underwriting fee, a $500 document preparation fee, a $150 site inspection fee, etc. And if there’s a repair escrow, some hard money lenders may charge you for each draw you take out of that repair escrow. Make sure you know all of the costs!

Because each deal is so different, a hard money lender that is good for one deal may not be the right lender for another deal. A good example is a hard money lender that funds fast, versus a lender with a low interest rate that is slower to fund. You would not want to use the lower interest rate lender on a deal that needs to fund fast because he is too slow to fund.

Create your own lenders decision matrix, determine what factors are most important to you, and then rate each of your lenders on those factors. You do this by giving each lender a number 1 to 5 rating for each of the factors.

For example, for each factor (or column) of the matrix, number 1 is the lowest score and number 5 is the highest score.

For example a lender that funds fast the fastest would have a number 5 listed under the “Speed of Funding” column, while your slowest funding lender would have a number 1 listed under the “Speed of Funding” column. Rate each lender on each factor on a scale of 1 to 5.

Then you total out each of the lenders points for each factor. The lender with the highest score is the winner.

Try using your own decision matrix when comparing among your hard money lenders and you’ll see how easy it is! If you have any questions about how to do this, please leave them in the comment section below.