Hard money loans are attractive alternatives to traditional mortgage banks. They offer real estate investors fast access to funds to finance their deal.
Hard money lenders offer greater flexibility with quick and less stringent approval processes. However, taking on a hard money loan without proper risk assessment may prove costly in the long run. As a savvy investor, here are six rookie mistakes that you need to avoid when working with Atlanta hard money lenders.
1. Not Getting Pre-approved
Fix and flip deals typically demand a quick turnaround or risk losing out. It leads to most investors committing to a contract before the loan gets approved. It can be shameful and stressful if the lender ends up rejecting your proposal. Consult and pre-qualify with your hard money loan. You may also get a proof of funds letter to increase your credibility.
2. Not Sure About the Interest Rates
Interest rates on hard money loans tend to be higher than those of traditional mortgages. The lender tends to incur a higher risk when offering hard money. Besides, the quick approvals and interest-only monthly payments may necessitate higher rates. Make sure you get the numbers right on how much you need to pay back each month.
3. Being Unsure About How Much To Borrow
Another common rookie mistake is a lack of budgeting when applying for the loan. Your full amount is due at the end of your loan term, with most lenders offering interest-only monthly repayments. The more money you borrow, the larger the amount you will pay at the end.
On the other hand, under borrowing can create shortages that hinder the completion of your project. This can increase the chances of you defaulting on your loan.
4. Failure to Check the Lender’s Reputation
You need to work with a reputable lender that will support the growth of your real estate business. Do your homework right. Check how long the lender has been in business? Which areas do they specialize in? What do past clients say about their work ethic? Hard money loans are major financial transactions that you should not handle lightly.
5. Not Giving Correct or Enough Information during Application
Hard money lenders in Georgia may demand a wide array of personalized and financial information before approving the loans. The documents create a clear financial picture for the lender on the type of real estate deal. Ask the lender to provide a list of documents required. Try to submit most of them, if not all. It may ease the approval process.
6. Not Reading the Fine Print
With human attention spans reduced to eight seconds, it is easy to see why most people would scroll through the fine print. Skimming over the contract details can prove costly in the long run. You need to understand what you agree to. Some clauses such as those on prepayment penalties may be hidden underneath other technical jargon, and it’s therefore important to read everything.
Hard money loans are investment financing options that can make or break your business. Conducting due diligence before signing off on the contracts may save you from heartaches later on. Are you looking for a reputable hard money lender in Atlanta, GA? Reality Resources Corporation offers private money loans, bad credit loans, and hard money loans for asset-based financing deals.