Question to Ask Your Hard Money Lender
Let’s say that you want to get started flipping houses. It’s certainly not a bad idea, especially when you consider the white-hot Colorado real estate market. But have you given any thought to how you’re going to fund these deals? The fact is that hard money loans are becoming more popular with developers and house flippers alike. Here’s the thing: if you’re so confident that you can buy a property and then turn it around in a short amount of time at a big profit, then it makes sense to work with a hard money lender. What many Colorado residents don’t realize, though, is that not all hard money financing teams are the same. Ultimately, you want to hire the one that makes the most sense for your unique situation. Here are some questions to ask hard money lenders before you make a decision:
- What are the points and interest? – It’s rare that two lenders are going to have the same points and interest rates. Keep in mind that, when it comes to hard money loans, the lender is more concerned with the amount of equity the borrower has invested in the property. Do you have any short sales or foreclosures on your record? Not to worry. As long as you have the capital to pay the interest that’s on the loan, the lender is likely to look past these blemishes. Borrowers should expect to pay interest rates anywhere from 10 to 15 percent on these loans and points ranging from 2 to 4 percent of the loan amount.
- Are the loan terms flexible? – Private hard money lenders focus on either short-term funding (up to 24 months) while others may offer terms of at least five years. Another reason why you should consider a hard money loan is that its terms can be pretty flexible based on maintaining the collateral coverage on your property. For example, could you use some breathing room for a particular fixer-upper? If so, then hard money real estate loans could be the answer.
- Does a hard money loan make sense for my situation? – We recommend that you ask this question before continuing with the rest of the process. Some of the best cases for using hard money financing are investment properties, land loans, construction loans, etc. At Abbey Mortgage & Investments, we routinely tell folks that these loans aren’t right for every deal. Let’s take a closer look at what we’re talking about. Say you’re purchasing a home for the first time. You and your spouse have good credit, a well-established income history, and no issues with foreclosure in the past. In this case, your best bet is to use a bank for conventional financing. Think of hard money loans as a source of financing when the loan is only needed for a short amount of time.