Hard Cash Loans, What’s Needed and Tips
Sometimes going on a little real estate venture can just be the key to making a little money. But you have to be familiar with the rules of the game. One rule will be to take out a loan. Now are there wealthy business people out there who do not need financial help for real estate investments? Yes, however the bulk of investors would rather take out a loan, then use their own.
What’s Needed for a Hard Cash Loan?
When it comes to getting a hard cash loan the investor will need to have some type of collateral. The real estate property will be the collateral. Collateral is important and the investor will not get the loan without it.
The applicant should understand that the collateral will be the property after it has been renovated. So real estate is not considered in its actual state. However, it is taken into account after it is completed.
When it comes to the credit score of the applicant, that is not needed. However, it would be better if the credit score was a decent score. Applicants have been known to get loans with scores as low as 500, as long as they had sufficient collateral.
Hard Cash Lenders Dos and Donts
Purchasing a property for the purposes of fixing it up, making it lovely and reselling it, sound easy enough. However, finding the best lender is needful. Deciding between hard cash lenders versus traditional lenders, will be the question to ask.
The application process of traditional lenders take much longer than hard cash lenders. Hard cash lenders take about 2 weeks to process their paperwork. Since most investors are on a tight schedule when it comes purchasing and renovating the property the latter may be recommended. Local hard money lenders recognize that the time of investors are very precious.
Hard cash lenders are private lenders. Since they are not part of large institutional banks, they may be open to make changes to the terms. For example, the repayment option may changed to better suit the needs of the investor.
This can really be helpful to the customer, and alleviate a great deal of stress. Also, since the paperwork is being done by a private lender, fees such as the origination fee, may be waived. During the underwriting process, suggested changes are more likely to be given thought than, with private lenders. Local hard money lenders try to be helpful, and look at every loan, as if it was their own.
Another good thing about private lenders are that, the collateral used in the transaction could possibly expand to other assets, not just the real estate property. The investor’s retire account, or other assets could be considered.
This could also be a huge relief for the investor. A traditional mortgage lender may not even consider such an option. There can be an awful lot of paperwork and red tape when dealing with banking institutions. Which is why many people turn to private lenders.
However, before signing on the dotted line, investors need to read the fine print of the cash loan. The interest rates of cash loans are usually higher than traditional mortgages. They can be as much as 10% higher. So make sure that interest rate is acceptable, if it is not continue to negotiate or go elsewhere.
The investor will have to take into consideration the other terms of deal, like the quick 14 day application period or the waived origination fee. The investor will have to weigh his/her options, then decide if they want to move forward. Also be attentive to when the loan must be paid back. If that is enough time for the property to be renovated. The time allotted by hard cash lenders are shorter than traditional mortgage loans for obvious reasons.
Will attempting to renovate the home in such a short period of time be too risky? If the property is not finished and resold by the specified date, the investor will need to ask for an extension. Will an extension be allowed? Will there be a fee for the extension? Will the fee be unreasonably high?
When a good private lender has been found, it may be a good idea for the investor to stick with that company if possible. After the fees and charges are well-known, and if they are fair it would make sense to build a relationship with that lender. Once the lender sees that the investor is responsible and meets his/her deadlines they may be willing in the future to make more provisions for the investor.