As a hard money lender, I’ve heard a lot of objections and myths over the years regarding why some people don’t want to use hard money loans. There are also misconceptions surrounding hard money lenders, more people don’t get right. Get ready because I’m about to debunk the top 3 myths in hard money!
What are the most common objections about borrowing hard money that I hear?
The most common objection is, “hard money is too expensive!” But what really is your most expensive money? It’s not hard money, it’s your money. That’s right. Think about that for a minute. Your money is way more expensive than hard money. Don’t believe me? Check out this video we did on this topic called, “Why Hard Money is Your Cheapest Money.”
But back to my point, hard money is NOT your most expensive money out there. Although this is the most common objection about borrowing hard money that I hear.
What is another common hard money objectives that I hear often?
The truth is, YES, you can qualify for a hard money loan if you have bad credit or can’t prove your income. Hard money loans are available to people with bad credit, foreclosures. and even past bankruptcies. Yes, that’s right. And most hard money lenders don’t have an income verification requirement for loan approval either. Wait until the end of this video and I’ll explain why hard money lenders will lend to you while others won’t.
What is another common objection that I hear about using hard money?
Many people who have never gotten a hard money loan before have a misconception that hard money lenders are all loan sharks and this means they’ll surely get taken advantage of. Wrong! Not all hard money lenders are loan sharks and unethical.
So how do you determine the good lenders from the bad? Read their reviews! If they have no reviews, then find someone else who has good reviews. Good reviews, that are clearly real, are a sign that you’re dealing with an ethical hard money lender that’s not a loan shark. But be aware of fake reviews from hard money lenders that take upfront fees in advance of giving you a loan.
If you actually read the reviews, and read more than one, you can often tell if a lender’s reviews are fake. A lender’s reviews are everything! And also make sure to check to see if the lender is licensed or accredited by the Better Business Bureau. If not, find someone else. Always work with licensed and accredited lenders!
And now I’m getting to the part you wanted to hear.
Why will a hard money lender lend to you if no one else will?
Hard money loans are not “hard” to get, as the name could suggest. Hard money loans are loans against “hard assets.” That’s why they are called hard money loans because hard money loans are asset based loans and not based on credit or income.
Hard money loans are easier to get than traditional loans, not harder to get! So, if you’ve never gotten a hard money loan before, what are your objections?
Please share them in the comments below if you have your own objections. If you are open to using a hard money loan, reach out to us.
I’m Corey Dutton, I’m a private money lender and one of the best you’ll find out there. I’m also licensed, accredited, and I’ve got great reviews to back it up!
What You Need to Get Bridge Loan Funding in 3-5 Business Days
Bridge Loans Explained
Financing is always the hardest piece of the puzzle for a new property purchase. And banks are not loosening up their lending requirements, but instead, banks are more selective about the loans that they will do since the pandemic lockdown in spring 2020.
Whether you are relocating to buy a new home, or you’re purchasing an investment property, you must cast your net out for financing as wide as possible in today’s lending environment.
Most buyers are not well versed in the various forms of financing that are available outside of traditional bank loans. Bridge loans, also called private money loans, are the least known types of loans.
These loans are funded by non-bank lenders. Bridge loans are called such because, like a bridge, they allow buyers to pass from one step to the next. For example, a bridge loan allows for a buyer to purchase a property which will later be paid off with a long-term, bank loan or will be paid off via another means.
A bridge loan is a good option for a buyer who wants to purchase a property quickly, similar to all cash. Bridge loans fund so much faster than bank loans, and this can make all of the difference in getting the right property, at the right price.
A bridge loan can fund in as quickly as 3-5 business days, but if you want to close a bridge loan quickly , here are some items you should have ready to provide to your bridge lender.
Items needed for a Bridge Loan
Purchase Contract: Provide the purchase contract to the lender if it’s a purchase. (If it’s a refinance loan and not a purchase loan, get a payoff statement from the current lender).
Property Description: You will want to provide your bridge lender with a property description and property photos, if available. In the property description, include the number of bedrooms, bathrooms, square footage, garage size, lot size, and the year built. If you’re buying an investment property that is generating rental income, provide a statement of rental income such as a rent roll, or an income statement if available.
Loan Application OR Personal Financial Statement: Does the lender require you to fill out a specific type of loan application? If so, fill out the application as completely as possible and send it back to the lender.
Many lenders have their loan applications right on their websites. Some bridge lenders will request a personal financial statement (PFS) rather than a loan application.
A personal financial statement is easy to put together if you’ve never completed one before. Just do an online search for, “template for personal financial statement,” and use one of the examples you find to create your own.
Buying a property as an LLC or Corporation? Get all of your business entity documents together, including your Articles of Incorporation, or Articles of Formation, and your EIN number.
Proof of Hazard Insurance: Get with your insurance agent and be ready to provide proof of hazard insurance on the property. The lender will want to be listed as the “mortgagee” on the policy, so find out what lender name and address is and provide it to your insurance agent. Then give your bridge lender a copy of the declaration page. You will pay for the insurance either before the closing, or at the closing as part of your closing costs.
Resume or Bio: This is for investment property purchases only. A resume or bio will show the bridge lender that you have prior experience in real estate investing, or, that you have a background to support your ability to manage an investment property successfully.
Some bridge lenders don’t require any experience in real estate investing to approve you for a loan to purchase an investment property.
In the current lending environment, you cannot have too many options for financing your real estate purchases. Don’t limit yourself to only one loan option with no other alternatives. A bridge loan is a no-hassle, fast funding loan, that you can rely on when a bank loan just isn’t an option!
Still have questions or want to know more? Leave your comments below and we will reply to you. Or leave your email address below in the comments and we will contact you!
Gap Financing: What you didn’t know
Gap Financing, it’s something most real estate investors don’t know about. I’m going to tell you about You’ve got a property you’re looking to purchase and you’ve got a hard money lender that’s willing to give you the majority of the money that you need for your deal. But you’re short on cash. You’ve gone to family and friends, people in your network, possible business partners, and you’re asking all of them for money to fund the “gap” you need to buy this property.
I am going to tell you how to get a lower cost of capital from these people that you’re asking to “fund the gap” on your deal. By structuring the funding the way I am going to tell you to do it, you are going to give your gap lenders a better feeling of security so you have a higher likelihood of actually getting that money from them!
Most people, when they go to family members or friends for capital to invest in their real estate deals, they approach them as a possible partner or as a joint venture (JV). Don’t do it!
Why not partner or JV? Because you’re going to be giving away a larger percentage of your final profit to that person if you partner with them on a deal!! You’re also going to have to deal with the hassle of having a partner.
If you’ve had partners or family and friends get involved with your real estate deals, you know it can cause you a lot of anguish and stress. Don’t do it!! What do you do instead? Approach these people for a “loan” or debt, instead of a partnership or a JV. You’re going to approach them for what’s called a “gap loan.”
What is Gap Financing?
Now, what exactly is a gap loan? A gap loan is a debt, like a mortgage, and it’s going to be the amount you are short to purchase or rehab a property.
For example, let’s say I’m a hard money lender and I’m going to give you a loan for ninety percent (90%) of the purchase price. You’ve got to come up with a 10 percent (10%) down payment and your repair money. So in this example you are short on the 10% down plus the funds you need for repairs. This means you will need a “gap loan” for that 10% down and the repairs money.
If you’re going to go to a family member, a friend, to ask for these funds you are lacking, now you’re going to say, “Make me a loan on this property, and in exchange for that, I’m going to give you a secured lien on this property.” That sounds a lot better than saying, “Give me the money to invest in this fix and flip property.”
And how is the gap loan structured? Well, the hard money lender is going to do a loan in a first position on that property. And your gap lender is going to do a loan in a second position on that property. Both the hard money lender and the gap lender are going to have secure lien on the property.
And why is a gap loan better for them than partnering with you? Well, rather than them wiring you the money and hoping and praying that your deal is going to work out as it should, they actually get a lien on that property. And if things don’t go as planned they have a secured interest in the real estate.
Real-World Example of a Gap Loan
Let me give you a real-world example of how a gap loan works. We were going to give Nicole a hard money loan to buy a fix and flip. She was short by $30,000 for the amount of money she needed to bring into the deal.
She goes to her uncle and she asks her uncle for a loan. Her uncle checks out the property. He likes what she’s doing. He’s willing to give her the $30,000.
Rather than do a partnership or a joint venture agreement with her uncle, Nicole has structured it as a gap loan, whereby her uncle is going to give her the $30,000 and in exchange for that $30,000 she is going to give him a flat fee of $2,850 when the house sells rather than paying interest. Not only that, but she is going to sign a promissory note with him and give him a lien on the property behind our first lien in the form of a deed of trust or 2nd mortgage.
We had a hard money loan in a first position on that property, and her uncle was going to loan that $30,000 in a second position behind us on that property, in exchange for a flat fee of $2,850 for loaning Nicole that money for a term of 6 months.
And whether the house sells in two months, three months, six months, the uncle was still guaranteed to get that $2,850. And he was going to get a lien on the property. Sounds like a great deal for the uncle! Why? Because rather than him just wiring the money into Nicole’s account and hoping and praying that the deal was going to work out, he was going to make a loan to Nicole. He was going to get a guaranteed $2,850 in 6 months whether she kept the loan for 2 months or 6 months. And he was going to get a lien on the property.
But why not partner with her uncle? Rather than having to split her final profits with her uncle, and deal with the hassle of having him as a partner, Nicole made him a lender and got a gap loan from him instead. If Nicole’s final profit on the deal is $15,000 and she agrees to make her uncle and partner and give him 30% of her profit. That would be $4,500. That’s a lot more than a flat fee of $2,850. Nicole is much better off if she makes her uncle a gap lender than a partner because Nicole walks away with more money.
But there’s one thing that you definitely need to know before you go out and get gap lenders to lend you money. There are licensing requirements. Some states require any lender that is lending on a residential property, whether it’s owner-occupied or non owner-occupied, whether it’s investment or consumer, to have a license to lend their money.
So don’t go out soliciting money from people to lend on residential property in a state where they may need to be licensed unless you understand the lending laws in that state. Why? Because you could expose them to liability and possibly very stiff fines. And you don’t want to put them in that liability.
How do you solve that problem? Lend your money through a licensed broker, like us! We can arrange for that on your behalf. You don’t have to worry about the licensing requirements because we are already licensed.
If you have any questions about how to structure this, leave him in the comments section below and we will answer those for you. Or reach out to us on our contact page. If you think that someone you know could benefit from reading this article, please share it with them!
Buy a home with Cash, Using Hard Money
Make Competitive Cash Offers To Buy A House
Do you want to buy a home with cash and make competitive offers that mimic all cash offers with no contingencies? Does it sound too good to be true? It’s not. It’s called using a hard money loan.
These loans work more like a line of credit than a loan. In most often they don’t go on your client’s credit at all. So how does it work? Your clients get approved with us for a line of credit rather than a permanent type of loan.
Once they’re approved, they can go out and make competitive offers that mimic all cash. These loans can close in as little as five to seven days with no contingencies.
An Example of Client that Bought a House as Cash
Let me give you an example. One of the realtors that we work with a lot. Her client wanted to make a very low offer on this property. We’d approved him for a line of credit with us. And the seller accepted his offer, which was a very low offer. As I said, because he could close in five to seven days with no contingencies.
Hard Money Loans are Competitive
How competitive is that? And if you think private money loans are super high cost and won’t work for your clients. Think again alone. Except, for example a loan that’s 9.5% that your client only keeps for two months before they refinance with long term financing. Actually only cost them 1.85% in interest.
What a low cost when you consider the high cost of losing a deal, you just can’t put a price on losing a deal.
Do you want to help your clients make cash like offers with no contingencies so you can get better deals on properties? Think about using a private money mortgage. If you don’t understand how these mortgages work, you should. Realtors that understand how these mortgages work. They make more money and close more deals.
So reach out to us and let us help you understand how to use private money mortgages to help you close more deals and faster for your clients. I’m Corey Dutton. I’m a licensed private money lender. Reach out to me.
Private Mortgage Lenders: What Realtors Need to Know
With private mortgage lenders, also commonly called a “bridge loan” you can save your deal! You’ve worked hard to get this deal closed and you’re almost to the finish line when a buyers financing falls out. When a deal falls out, even if the realtor isn’t to blame, the realtor can feel somehow to blame. As a realtor, how can you help save a deal that you’ve worked so hard to get to the finish line?
How A Private Mortgage Lender Can Save The Day!
Here’s a recent story about a buyer’s financing that had fallen out at the last minute after the sellers had already moved out of the home. What a nightmare for Jonathan, the realtor who represented the seller!
He felt somehow responsible for the deal falling through, even though he had done everything in his power to make sure it would close and it was out of his control.
Jonathan did not know about private mortgage lender and how they are used to fund acquisitions like this in a situation where a buyer’s financing has fallen out. Jonathan called his mortgage broker friend for help, who then told him about us. Jonathan then gave our contact information to the buyer.
We were introduced to the buyer on a Tuesday and he proceeded to get approved for a loan with us that same day. Guess what? We funded the purchase on Friday, by the end of the day, and the interest rate was under 10%!
Yes, this is a true story. This is also a good example of how Jonathan, the seller’s agent, indirectly saved the deal by introducing the buyer to us. This buyer just needed to file his 2019 tax returns to qualify for a long-term, 30 year mortgage so we gave the buyer what is called a “temporary bridge loan.” This is a loan used for purchases, a loan that is for 12 months or less, and with an interest rate under 10%. But the best part about bridge loans? These loans can close in days, not weeks.
Why Realtors Need A Private Money Lender In Their Contacts
Realtors that know how a private mortgage lenders are able to close more deals and close them faster than realtors who don’t know about private money loans. These private money loans help your clients purchase properties that they quickly refinance with a long term loan, on average within 2 to 4 months. That’s why these loans act more like a line of credit than a loan. And believe it or not, bridge loans most often do not go on your client’s credit report.
Despite popular belief, private money loans are not as high cost as many realtors think. Here’s an example. Say your client gets a private money loan at 9.5% and only keeps a loan for 2 months. He pays 1.58% in interest for the two months. What a small price to pay when you consider the high cost of losing that deal for all parties involved!
A private money loan is an easy solution that can save a deal that you may have worked on for months.
Get to know us as your go to private mortgage lenders for your fall outs, or even as a back up plan. Put our contact information into your phone right now, or forward it to someone you know that could use a fast loan for a fall out. Phone: 435-565-1768. Email: [email protected] We are licensed, very reputable, and have worked with a ton of realtors and their clients to solve problems like these. You’ll never know when you may need to reach out to us so please keep our contact information handy.
What questions do you have about how to use private money loans to solve real estate lending problems for your buyers and sellers? Leave your comments below and give us a chance to discuss it with you. You may be glad you did when the next problematic financing issue comes up that could compromise your real estate deal.
How To Buy an Auction House With Hard Money
So you’re buying auction properties. You need to get a loan in advance before you start to bid. I’m going to tell you How To Buy an Auction House With Hard Money.
Step One- Auction House Details
The first step is you need to submit the property details to us for the property or properties that you’re planning to bid on.
Why? Well, you need to go into that auction with confidence, knowing that you’re already approved with a loan.
What do we need? We are going to need the property information, property address, property details, what your max bid price would be.
Step Two- Get Approved To Buy The Home From Auction With Hard Money
Once you get the approval from us, you will know what the terms are for the loan and you’ll know if that’s going to work for you.
You will know if you can actually go and bid on this property or not. Are you going to have enough money to bring in as a downpayment or in repairs to make this deal work?
Step Three- Notify Us When You Plan to go to the Foreclosure Auction
Give us a heads up the day before the auction so that we know you’re still planning on going and bidding on a particular property that we gave you a loan approval for some borrowers.
Sometimes borrowers will wait to contact us until the actual day that they’ve won the auction and sometimes we’re not ready.
So we need to get a little bit of a nudge or a little heads up the day before you’re planning on bidding.
Step four- Auction Paperwork
Send us all of the paperwork that the auction house has given you on that property. We’re going to order a title report and we’re going to set up the closing.
Step five- Close on the property
And then finally, the best step of all, step number five. Let’s close on this property. We set up an appointment with you at the title company. We’re gonna have all of the documents sent over there.
The auction house is going to have their documents sent over. We’re going to wire funds in and we’re going to close.
And you are going be an owner of a property that you bought at auction!
Hard Money Auction Financing Terms
So what are the terms you’re asking now? What are the terms for a typical loan on an auction property?
Well, the terms are going to range from a loan amount for between 80 percent to 90 percent of the purchase price.
Why not 100 percent financing? Well, typically on auction properties, we’re not able to get inside the property and take a look at it before we give you loan approval.
So that’s why I say we can lend you anywhere between 80 to 90 percent of the purchase price for the property.
In rare events, we are able to get inside the property and we’re able to take a look at it before you go and bid at auction. In that case, we may be able to give you a loan for 100 percent of the purchase price, but this is on a case by case basis.
Hard Money Interest Rates
And then what is the interest rate of these loans? You’re going expect to pay anywhere between 10 to 12 percent in interest?
Interest rate interest only, no principal payments.
And then what are the loan fees? Anywhere from one to three points or one to three percent of the loan amount as a loan fee.
And then finally, the loan term anywhere from six to 24 months.
If you’re looking at properties to buy at auction, reach out to us and get pre-approved before you go and bid.
If you have any questions, leave them in the comments section below and we’ll do our best to answer those.
How To Get 100% Financing Hard Money
[Video Transcript] Hi, I’m Corey Dutton, I’m a private money lender, and today I want to talk to you about how to get 100% financing on your real estate deals
But before we get started, I want to just give you a quick disclaimer about that, because there’s a lot of hard money lenders out there that are offering 100% financing and they’re a total scam!
Watch out for hard money scams first!
All they want to do is just take an upfront fee from you, they have no intention of ever giving you a 100% financing.
So definitely beware of scams out there, lenders that are saying that they’re going to give you 100% financing because, just remember, if it “seems too good to be true, it probably is.”
100% Hard Money Financing Explained
So let’s dive right in to what we’re talking about today, which is how to get 100% financing on your real estate deals. I mean, that’s what you really want to know, right? So let’s dig into that.
Now, you’re out there and you need money for your real estate deal. So you either have rehab funds available and they’re ready to go, and all you need is someone that will fund 100% of your purchase price of the property.
OK. So that’s one type of 100% financing where you just need the purchase price, 100% of the purchase price, you’ve got the repairs taken care of, they’re already funded, they’re set aside. OK. The other way that you want 100% financing on your real estate deal is if you’re looking for 100% of the purchase price AND 100% of the repairs.
So you don’t have the repairs set aside. That’s where you’re going to need that 100% of the purchase price and 100% of the repairs. So let’s start with when you have the repairs already accounted for, they’re taken care of, they’re set aside, whether your money, borrowed money, whatever, you’ve got the funds for the repairs and you just need a loan for 100% of the purchase price. So you can structure that as an “80/20 loan,” or a “90/10 loan.”
So what do I mean by that? Let’s start with the 80/20. When I say 80/20, I mean 80% of the purchase price and 20% of the purchase price equals 100% of the purchase price. So how do you do that?
Well, you get a hard money lender like me to loan you 80% of the purchase price as a first position loan, in a first position. And then directly behind that, you’re going to get another lender, usually a “gap lender,” maybe a partner, but someone to lend you that 20% in a second position behind that first position loan at 80% So you’ve got 80%, and 20%, that equals your 100% of the purchase price.
So “what is a gap lender?” So that gap lender is that person, or that lender, that’s going to come in a second position behind that 80% hard money lender. And a gap lender is a lender that’s going to gap that difference between that 80% that that hard money lender will do and that 20% you need to get to 100% of the purchase price. Now, what’s a gap lender?
You’ve got a hard money lender that’s going to lend you 90% of the purchase price in a first position, and then you’ve got a gap lender to lend you 10% of the purchase price in a second position behind that first position lender to get you 100% of the purchase price.
OK? So that’s how, for those of you who have your repairs already set aside, and they’re ready to go, and you need 100% of the purchase price, that’s how you’re going to get 100% financing on your deal by structuring either an 80/20 or a 90/10. Now, let’s say you’re out there and you don’t have money for the purchase and you don’t have money for the repairs.
100% of purchase AND 100% of the repairs.
So you’re looking for 100% of purchase AND 100% of the repairs. Now again, quick disclaimer, once again, a lot of lenders out there are offering that type of financing, 100% financing, they say they will fund 100% of the purchase price of 100% of the repairs. Well again, if it seems too good to be true, often it is.
But there are some hard money lenders out there that are doing that. They are going to give you 100% of the purchase price and 100% of the repairs. So good news, there are some real, legitimate lenders that aren’t just trying to scam you and promote a false loan program, they actually are offering it. But how do you get approved for that? I mean, how do you get qualified for the 100% of the purchase price and 100% of the repairs? You’re wondering, you’re scratching your head.
Well, here’s how! The lenders that will lend you 100% of purchase, 100% of repairs are going to determine your loan amount via an appraisal, or a broker’s price opinion, based on the “after repaired value” or “ARV.” Now what do they do? They get the appraisal, they get the BPO, for the after repaired value, whatever that value comes back as, they’re going to give you a percentage of that amount, and that would be your loan amount. OK, so that’s how they structure that.
After Repaired Values
Some lenders will lend you a loan amount of 65% of the after repaired value or ARV. Some lenders will lend you 70% of the ARV. And I’ve even seen some lenders out there lending 75% of the ARV. Now, are they real? Don’t know, but I’ve definitely seen it advertised.
So let’s do a quick example, this will make it a little bit easier for you to understand this concept. OK, imagine you’ve got a house you’re buying for $100,000, you’ve got $50,000 in repairs, and then, your after repaired value for this property is $230,000.
Well, good news. The appraisal, or the BPO, comes back at the $230,000. So you were right! And the lender ordered that appraisal, or the BPO, they get it back and they say, “wow, ok, we’ll lend you 65% of the after repair value.” Well, 65% of $230,000 in this example would give you a loan amount of $149,500.
Well that’s going to cover 100% of your purchase price and almost 100% of your repairs, less $500. Because remember, your purchase price was $100,000, your repairs were $50K, that gives you $150,000 that you need, to get 100% financing. And if the lender is giving you 65% of your after repair value of $230K, well, $149,500 is $500 short of that $150K. So essentially you’re getting darn near close to 100% financing in this example.
Well, hopefully that helps you understand the different types of financing that is out there for you if you’re looking for 100% financing on your deals. Now you have to determine, are you just looking for 100% of the purchase price?
And if so, how will you structure that using a hard money lender in a first position at 80%, or 90%, and a gap lender in a second position at 20%, or 10%, like we used in the example of the 80/20 and 90/10.
Or, like I said before, if you don’t have funds for the repairs and you’re looking for 100% of purchase price and 100% of repairs, at least now you’ll understand how a lender will approve you for that, approve you for that 100% financing that you’re seeking. This is Corey Dutton, I’m a private money lender. If you think that someone you know could benefit from this, please share it with them! Like and subscribe to get more content like this. And if you have any comments, please leave them in the comments section below. Thanks for watching!
Choosing a Hard Money Lender- What You Didn’t Know
This is Corey Dutton. I’m a private money lender, and in this video, I’m going to teach you how to compare your loan options among various hard money lenders. So you’re out there and you’re looking for hard money. There’s a million options to choose from.
How do you compare hard money lenders?
Well if you’re looking based on price alone you’re making a huge rookie mistake.
A guy comes to me the other day and he’s out there shopping for hard money, and he tells me in the middle of the conversation, “Well, stop right there! Because I’ve already gotten a quote of 10% from another hard money lender. I don’t need to talk to you anymore.” And I asked him, I said, “Well, this guy at 10%, what are his requirements?” The guy says to me, “I don’t know.” And I said, “Well, how much is he going to loan you for the 10%?” He says, “I don’t know.”
This guy didn’t know anything! 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!
Know how to compare your options. What I am going to ask you to do right now is to grab a piece of paper. And at the top of the paper I want you to write down, ‘what is your biggest need for this hard money loan?’ And what do I mean by that?
Well, how fast do you need to fund? If fast funding is your biggest need, write that down. If you’ve got all the time in the world to waste, then that’s not your biggest need.
If you don’t have any money to bring into the deal, you’re really low on cash, that’s your biggest need. Finding a hard money lender that’ll give you 100%. If you’ve got all the cash in the world? That’s not your biggest need is it? Or what about your credit?
What if you have bad credit and no income? Well, your biggest need is going to be a hard money lender that doesn’t base an approval on your credit or your income.
So now that you’ve written down your biggest need at the top of the page, I want you to create what’s called a “Decision Matrix.” Look it up online, it’s a chart. Studies have proven that if you write down all your options and have them in front of you, you can make a better decision.
It’s essentially a chart. And on the left side of the chart, I want you to list all your hard money lenders that you’re shopping with rows in the chart.
And each column in the chart are going to be the various factors that you’re going to use to compare your hard money lenders. So there’s a million factors that you can use to compare your hard money lenders. I’m going to talk about the seven most important factors that you’re going to use to compare your hard money lenders. So what are these seven factors?
The seven factors to choose a hard money lender
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, and
7. Total cost of the loan.
Find out the answer to that question and write it down. This is extremely important as you’re going to find out here shortly as we go through some of the other factors and comparing.
The Hard Money Lenders Speed of Funding
Now the second factor, the second column, “speed of funding.” Now take this one with a grain of salt. Just because a hard money lender tells you that they can fund in five to ten business days on their website, 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,” there is no way that the lender is going to be able to close your loan in five to ten days. There’s just no way! It takes two to three weeks to get an appraisal back, in most cases.
Not only that, but let’s say the lender has a long list of requirements. There’s no way they’re going to close your loan in five to ten business days with that long list of requirements. So, although you want to use the speed of funding as a way to compare, take it with a grain of salt.
Requirements of Your Hard Money Lender
Now the third column, the third variable we’re going to talk about is the “requirements” of your lender. What are the requirements? This is the one that is going to require the most research on your part.
You need to find out ALL of the requirements and write them all down so that you’re comparing your hard money lenders properly.
What’s an example? A good example is “Recasa Financial.” They are a nationwide rehab lender and they offer a 100% financing. But the requirements to get that 100% financing are long and arduous.
A good example, let’s say you’re buying the property in the name of an LLC, and your spouse has nothing to do with it, it’s your deal, you’re doing that deal in the name of an LLC. “Recasa Financial” requires that your spouse signs a personal guarantee on that loan!
And if you didn’t read the fine print, and you didn’t read all the requirements and do your research, you might have eliminated all your other hard money lenders and gone with Recasa Financial only to find out that you need a “spousal personal guarantee.” And whose spouse wants to sign a personal guarantee on your business deal? Nobody. It doesn’t make any sense!
So make sure you do your research and find out every, single requirement that the hard money lender will have for approval of your loan.
The Lenders Cash to Close Requirements
And then, the fourth column, the fourth factor that we’re going to use to compare is your “cash to close requirements.” What is the lender requiring you to bring in, what’s your down payment? Or what are your “cash to close requirements?” Know what that is!
Because if this guy over here says he’s offering you a 10% rate, but he wants you to bring 20% down. And this guy over here is offering you a 12% rate with no money down. And your biggest need is no money down? Which lender are you going to go with? You’re not going to go with the 10% lender because you don’t have 20% down!
So make sure that you know what the “cash the close requirements” are for each of the hard money lenders that you’re talking to.
Hard Money Lender Reviews
And then, another factor, another column, “reviews.” Look at the “lender’s reviews.
What are they? If they have no reviews? Think about that for a second! Some of these guys have just set up shop this week and they’re trying to offer hard money loans, right?
If they have no reviews, are you really going to trust that they can fund your deal and give you a good rate? Probably not. Also, the reviews will tell you a lot of things about the lender.
If you do your research and read the reviews you’ll find out, if they say they can close in five to ten business days. A good example, is “LendingHome.” They they say they have a 9% rate to fix and flip investors and they can close quickly. Well, if you read the reviews you’ll find out it takes them about 21 days or more to close.
And if you’ve got to close in 3 to 5 days, that lender is not going to work for you!
So make sure you know what the “reviews” are for each of these lenders that you’re looking into, because if the reviews are bad, or the reviews say something else about the lender, like maybe they’re declining you at the last minute because of some requirement that you didn’t know about? Well you may want to go with another hard money lender.
Monthly Payments of a Hard Money Loan
And then, “Monthly Payments.” Does the lender require monthly payments? Most hard money lenders, YES, they require monthly payments! And if they don’t, usually there’s some other factor that offsets that, like they want a larger down payment, or there’s some other kind of credit requirement that they have, something along that line that maybe you need to do some more research to find out.
Because most hard money lenders are going to require monthly payments. And then finally, “total cost of the loan.” A lender, a hard money lender has interest rate, points, and then “junk fees.”
And if you don’t know what the “total costs” are, for each one 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 doc prep fee, a $150 site inspection fee.
And if there is a repair escrow, they’re going to charge you $250 to $300 per draw out of that repair escrow, on and on and on! Those are “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 look at all the “junk fees” that are going to be charged to you.
Not only before you get the loan, but after you close on the loan. Because you may eliminate a lender that you think has higher points, not knowing that this other lender over here has quoted you lower points, but has all these other junk fees that are adding up to be a higher cost loan than the other hard money lender over there.
So if you’re out there looking for hard money loan options, make sure you know how to compare among hard money lenders. Don’t just compare based on price alone. Because you are not going to get the right type of loan for your “biggest need.”
Maximize Your Fix & Flip Profit With A Hard Money Loan
Transcript: I’m Corey Dutton. I’m a private money lender and today I’m going to talk to you about 3 ways to maximize your profit on a fix and flip with a hard money loan.
1. Bring in more money as a down payment
The bigger the down payment the lower the interest rate and the points. If you bring in a larger down payment you will maximize your profit on a fix and flip using a hard money loan.
2. Resell the property as fast as possible!
First of all, you need to understand how hard money interest rates work. If you have a hard money loan at 12 percent annual interest, that’s 1 percent interest per month, and you pay as you go. So if you hold the property for 4 months, you pay 4 percent in interest. If you hold the property for 6 months you pay 6 percent in interest.
The faster you sell the property and pay off the hard money loan, the more you’ll maximize your profit on a fix and flip using a hard money loan.
3. Look out for “junk fees” and hidden fees that may be charged by your hard money lender.
Besides points that you’re going to pay as part of your loan fees, there are also “junk fees” associated with some hard money loans. Make sure you have a full list of all of the junk fees that are involved in your hard money loan. Also, read your loan documents. If you miss a payment, what is the default interest? If you are late on a payment, what is the late payment charge? Make sure you understand all the fees and hidden costs in your hard money loan before you sign on the dotted line. This will help maximize your profit.
Getting a Home Loan With Bad Credit
With new mortgage rules passed since the last recession, it has made it even harder to qualify for home loans for bad credit borrowers.
Private money loans are a good option for home loans for bad credit borrowers. A private money lender is simply defined as a non-bank lender.
If the term private money makes you nervous, think for a minute that the largest private money lender in the United States is ‘Quicken Loans,’ as of the date of this posting. But for bad credit borrowers, ‘Quicken Loans’ is not a good option as you must good credit and they have stringent guidelines.
A few reasons for bad credit could include, bankruptcy, unexpected medical bills, credit disputes, temporary job los, or even a difficult divorce.
Private money lenders provide alternative solutions for bad credit borrowers by offering sub prime loans, bridge loans, or portfolio loans, or a hard money loan.
Private money lenders that do make home loans for bad credit borrowers usually fall in one of the two categories:
1. Sub prime loans
2. Bridge loans.
While these loans have slightly higher interest rates than FHA or conventional loans, they tend to be faster and come with less stringent requirements for loan approval. Because each borrower has different goals, it’s important to determine those goals before pursuing one loan over another.
For borrowers with the goal of having a long-term loan option, sub prime loans are a good alternative because these loans can be held for a term of up to 30 years, with both principal and interest payments.
In fact, the most common use of a sub prime loan is for home loans for bad credit borrowers who want to keep the loan for a long term, 5 years or more.
There are sub prime lenders that will lend to borrowers with credit scores as low as 500, even those who are only one week out of bankruptcy or foreclosure. The interest rates on these loans range from 6% to 9%.
Short Term Bridge Loans
For borrowers with the goal of purchasing a property quickly and refinancing or reselling in the short-term, in under 5 years, bridge loans are the best option because they are typically 2 years or less.
To purchase a property and then sell or refinance with an FHA loan or conventional loan within 1-2 years.
Pay off revolving debt on credit report with the goal of raising the credit score of the borrower. Bridge loans are typically not credit based either, which means lenders don’t decline a borrower because of a low credit score. Because bridge loans are so short-term, they don’t appeal to borrowers who are looking for a long-term loan option. The interest rates on bridge loans are higher than sub prime loans, and range from 7% to 12%.
A borrower looking to purchase a property, or refinance a property, is quickly discovering that there aren’t a lot of options for home loans for bad credit borrowers.
Since the last recession, bank lending standards have grown more stringent and it is not easy to qualify for a mortgage loan.
Banks often look for reasons not to make loans, rather than focus on reasons why they should make loans.
Some people have bad credit, and well, bad things happen. So what are the alternatives to an FHA loan or a conventional loan?
When searching for home loans for bad credit, many people simply don’t know where to start. Hopefully this short article has helped explain how private money lenders are a good resource for bad credit borrowers.
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