We often hear about hard money loans and their advantages, but what does it actually mean? A hard money loan is when someone borrows money from a private lender, usually to purchase a piece of real estate. It can be useful if you are not able to secure traditional financing, such as a mortgage, due to credit issues or other reasons. But before you jump into this type of loan, it’s important to consider all the factors involved. Let’s look at three things you should consider before applying for a hard money loan.
1) Interest Rates:
Hard money loans often come with higher interest rates than traditional financing options. It typically ranges from 8-18%, depending on the borrower’s credit score and the size of the loan. Additionally, some lenders may require additional points on top of the rate that will need to be paid upfront in order to obtain the loan. Be sure to read all documents carefully and understand exactly how much you will be charged before signing any agreement.
2) Repayment Terms:
The repayment terms vary between lenders and can range from short-term (up to 3 years) to long-term (5+ years). Make sure you know exactly how long you have before you need to repay the loan so that you can plan accordingly. Additionally, some lenders may require monthly payments while others may only require one payment at the end of your term. Be sure to inquire about this ahead of time so there are no surprises down the line.
3) Collateral Requirements:
Most hard money loans require collateral in order to secure them. This means that if you fail to make payments on your loan, then your collateral can be taken away by the lender in order to recoup their losses. Think carefully about what kind of collateral you are willing and able to provide before signing any agreement with a lender. In some cases, it may not be wise or even necessary for you to use your home or other assets as collateral for this type of loan.
Although you may be able to attain a loan with a low credit score, it still helps you greatly to have a good credit score. Having a higher credit score can help you attain larger loans with fewer penalties or lower interest rates. Hard money loans will always come with higher interest rates but having a good credit score can help you out in the long run.
Applying for a hard money loan can be incredibly beneficial for those who are unable secure traditional financing, however, it is important that borrowers understand all aspects of this type of financing before taking out a loan like this one. Consider interest rates, repayment terms, and collateral requirements carefully before signing any documents so that you are fully prepared and informed when taking out a hard money loan! If done correctly, this type of investment can prove quite profitable over time!
Fund with FlipCo Financial
FlipCo understands that not every borrower is experienced with hard money. Our team works with you to ensure that you understand every part of your loan agreement and how it can affect your finances and project. Ultimately, lenders are successful when our clients are successful so we make your success our priority. Contact us to learn more about how funding with FlipCo gives you an advantage.