In the U.S., an average citizen is approximately $38, 000 debt–and that is excluding their mortgage. Such levels of debt have become limiting factors for individuals looking to invest in real estate and property flipping.
Remember, having a bad credit score can make it hard to get a mortgage from a bank. Additionally, traditional lenders and banks rarely lend on risky investments, such as flips. Instead, they prefer stable investments that are more likely to pay back the loan.
Therefore, as an investor intending to purchase a distressed property through financing, you only have a few options. Among the various financing options available, most investors who want to flip or rehab a property prefer hard money loans.
Why? Because your creditworthiness doesn’t determine your ability to get hard money loans as banks do. Instead, the property value determines whether you qualify to secure a loan. Specifically, hard money lenders pay attention to the ARV (after repair value). ARV is the estimated value of a property once the renovation is complete.
Why Should You Consider Hard Money Loans?
There are many reasons why you should obtain a hard money loan instead of a traditional bank mortgage.
First, hard money loans are quite convenient since you can get funding after some weeks. On the other hand, applying for mortgage loans takes a lot of time, especially after the implementation of new mortgage lending regulations. In fact, it can even take months to get a bank loan, which can put you at risk of losing an investment opportunity. For that reason, a hard money lender is your go-to option, especially if you are financing a large project that has a laid out timeline to completion.
Secondly, hard money lending involves a quick process since you work with an individual or a small group or company of lenders. Thus, you are likely to face fewer communication challenges than when working with a large corporation. And as we mentioned earlier, Atlanta hard money lenders are only interested in the value of the property to back the loan, and not your credit score. Also, you can obtain your loan in a matter of days or weeks, depending on your lender, unlike banks that take up to three months.
In addition, with hard money loans, you can borrow more, unlike other financing options. For instance, you need a minimum of five percent of the property’s buying price to obtain traditional mortgages. Similarly, banks require you to put in twenty percent of the buying price in order to secure better loan terms. On the other hand, a hard money lender can offer you up to 100 percent of the property’s buying price. And you only have to pay the origination fee and monthly interest until the loan is paid in full with no down payment.
Lastly, since it’s private lenders that offer hard money loans, it is possible to have more room to negotiate the terms of the loan. For instance, you can ask the lender to schedule your repayment, depending on your needs. Or, get fees like the origination fee eliminated or minimized when the loan is in underwriting.
What Do Hard Money Lenders in Georgia Consider Before Giving You a Loan?
First of all, the lenders are more interested in the property, and they have to evaluate you, so you need to have your accounts in order.
They would also like to know if you can close a deal, so it’s crucial to set up a meeting with them just like you would with a bank. This way, you get to win their trust as well as build rapport.
In Conclusion
Although a hard money loan might seem a bit expensive, it is a flexible way to invest in real estate. And while it’s one of the best fix and flip loans, you can as well use it for properties you intend to hold.
So if you are an entrepreneur and a real estate investor, you can obtain lucrative deals using hard money loans. And since banks avoid flips due to low occupancy, hard money makes it possible. Therefore, hard money is an ideal tool to include in your real estate investment goals.