What To Expect When Getting A Hard Money Loan

You might know that home mortgage loans are for people who want to buy houses, but do you know about hard money loans? Lenders issue these loans to help people buy homes, too, but hard money loans serve a completely different purpose. If you are interested in fixing up homes for a profit, you might want to consider borrowing money through a hard money loan. Before you do, here are several vital things to know.

These Loans Are for Investment Properties

The sole purpose of a hard money loan is for investment properties. People often want to purchase run-down properties to make profits by fixing them up. If this is a goal you have, you can turn to a hard money loan for financing.

You Might Pay a Higher Interest Rate

Lenders consider hard money loans riskier than other loan types. As a result, they charge higher interest rates for the money. You should expect to pay a higher rate because there is more risk involved.

The Home's Finished Value Matters More Than Other Factors

Lenders that offer these loans do not base their decisions on a borrower's credit. Instead, they factor in the home's finished value more than any other factor. Lenders want to know three main things:

  • How much you will pay for the property.
  • How much money you must invest in it.
  • How much the house will be worth when you finish all the renovations.

They base their lending decisions on these things rather than on credit.

The Balance Is Due Within One Year

One key thing to know is that you will have to pay the loan in full within one year. Some lenders might offer due dates longer than this, but most lenders require the full payment within a year. These are short-term loans that provide enough time to complete the renovations and sell the property.

You Must Make Interest Payments

During the time you borrow the money, the lender will ask you to pay interest payments. You will pay these each month, and the amount you owe depends on the loan balance and the interest rate. You will likely begin with lower monthly interest payments. As you get towards the end of the loan, your interest payments will probably be a lot higher.

Would you like to apply for a hard money loan? You can do so by meeting with a hard money lender.