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Are you a real estate investor? You might have an excellent opportunity to purchase a property that will provide an excellent ROI and become a successful investor. Unfortunately, the window of opportunity might close because you can’t find sufficient funding.
This is why hard money loans can be so important. It is estimated that there are around 8,300 hard money lenders in the United States. They work closely with real estate developers and investors to help them get the capital necessary to finance their ventures.
If you are a real estate investor or developer, these hard money loans can be a critical lifeline. Unfortunately, there is no guarantee that you will secure a loan from one of these lenders. You need to do your due diligence and make sure that know how to work effectively with hard money lenders to maximize your chance of getting a loan. You should also understand the actuarial factors that will affect your interest rate if you do get funding.
Here are some tips that you should follow before applying for a hard money loan.
There are numerous factors that could potentially affect your ability to get a hard money loan. These include your personal or business credit score, debt to income ratios, the type of property that you are looking for, any liens on properties that you have and the real estate market that you are operating in. You might be denied a hard money loan for a property in a very expensive market such as a waterfront property, because it might be too expensive.
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You should disclose these types of concerns before pursuing your loan. The lender will want to work with you to resolve them if at all possible. If there are some irreconcilable issues that will prevent you from getting a hard money loan, it is better to know before hand, so that you don’t pay for an application fee just to be rejected.
Since there are over 8,000 hard money lenders in the United States, you will have a lot of options to choose from. Raffaele Forino, founder of Gauntlet Funding, a company that connects borrowers with hard money lenders in Georgia, stresses the importance of finding the right lenders.
“Quality of hard money lenders varies tremendously, even within the same region. Every borrower must carefully assess their options and make an informed decision based on thorough due diligence.”
You should thoroughly review any online profiles from Yelp, Google Places and other listings. You will want to see how other real estate investors rate their experience with a given lender.
It is also good to speak with professionals that you depend on for quality advice. Your lawyer and accountant should be able to give excellent feedback on the best hard money lenders in your respective market.
Many borrowers don’t understand the complexity of the hard money borrowing process. They assume that it takes around the same amount of time to underwrite a hard money loan as it would to underwrite an auto or typical mortgage loan.
Due to the complexities of the process, it usually takes a lot longer. Hard money lenders have to spend a lot more time servicing their clients.
You need to appreciate the amount of work that goes into creating a hard money loan. You should be as courteous as possible to your lender and treat them with the professionalism and respect that they have earned.
This will help you complete the process more quickly. It will also help you forge a better relationship with your lender, which should make it easier to get another loan in the future.
Some lenders have a good track record for integrity and giving the most affordable rates to their borrowers. However, there could be other complications that impede your ability to secure a loan with them.
Some lenders are not able to retain enough cash to service all of the borrowers that they would like to work with. Although they might serve their clients well in other ways, this creates some challenges for real estate investors and developers that are trying to scale their operations.
You need to be aware of your financing needs and find a hard money lender that is capable of fulfilling them.
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