Win with hard money in this crazy real estate market
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.
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 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. As part of a borrower’s closing costs would be a loan origination fee or loan points. The interest rates on a hard money loan usus depend on the size of the down payment on a purchase and range from 9% to 12%.
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.
We give you the straight facts on what a bridge loan is, how it works, and whether or not it’s right for you
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
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.
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.
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.
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
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 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.
Method of valuation
Speed of funding
Requirements of funding
Cash to close requirements
Reviews about the lender
Monthly payments required?
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%.
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.
3 Common Hard Money Objectives Busted
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.