The U.S. home market increased by 6.2% to stand at a $33.3 trillion valuation in 2018. The real estate market has recovered from the 2011 slump that valued the industry at $10.8 trillion. With the market still on the rise, more companies and individuals are swooping in for deals. It’s essential for you as an investor to have ready cash to cut into the market boom.
What Is Hard Money Lending?
A hard money loan is an asset-based financing option where a borrower secures funds to purchase a property by placing the real estate as collateral. Hard money lenders offer quicker access to funds with fewer bureaucracies that traditional financiers. With 68 million Americans having a bad credit score, access to bank mortgage loans might be next to impossible. Here’s how to choose the right hard money lender.
1. Know Your Hard Money Loan Needs
Keep in mind the purpose of your loan. Are you financing a fix and flip deal, or are you purchasing a rental space? Understanding your cash flow needs helps you convince your lenders to finance your property deal. Most hard money financiers offer various lending options for commercial and residential properties.
2. Go Local
Most money lenders that offer a nationwide outreach may have less flexibility in their programs. You need a financier that understands the local real estate market and provides the correct valuation of your property. Besides, most lenders need to inspect the property before funding the project.
3. Competitive Interest Rates
Most hard money lenders offer a loan to value ratio of between 60-80%. Understand the calculation of the rates and points before signing the contract. Compare interest rates from loan providers before settling on one. Find out if you can defer interest payments until payoff.
4. Go for Transparency
The chosen Atlanta private lending should be upfront about all their fees, interest rates, and payment schedules. The lender should have the disclosed figures and time frame on a written contract. A typical hard money loan is six months to a year, but it’s possible to get longer terms of up to three years in certain circumstances. Go through all the nitty-gritty before putting pen to paper.
5. Licensed Lender
It’s vital to work with an authorized lender within the state. Most states offer a real estate broker license as proof of a valid business operation. You need to find a financier who is a member of accredited associations such as the local chapter of the National Mortgage Registry.
6. Go for Simpler, Faster Approvals
The nature of the fast-paced real estate industry demands a quick turnaround time. Find a lender that understands the need for faster approvals in the fix and flip business. Most lenders issue loans with five to fourteen days. However, some may approve the loan on the same day for their loyal clients.
7. Specialized In the Real Estate Industry
You should consider working with a company that specializes in asset-based lending. A lender with a firm foothold in the industry understands the local real estate market better. They can offer great advice that helps you avoid pitfalls that may sink your money.
The profitable real estate business requires quick access to ready funds to cash in on the discounted prices. A hard money loan may finance your next flip deal with a faster and less stringent approval process.