Not all loans are meant to be used for every financial need. Understanding how to best use hard money loans can help borrowers to take full advantage of these loans.
Because hard money loans offer some very specific benefits and drawbacks, there are certain types of purchases which are best suited to hard money loans. Having a clear understanding of how hard money works and its benefits can help first-time borrowers use them to their greatest benefit to increase profits and to grow their personal wealth.
These private loans are generally made for only a short time which can range from just a few months to a few years. Being short-term these loans are obviously best when used for short-term projects rather than being used in the place of a traditional mortgage which would span several decades. Some examples of short-term deals include fix and flips, land loans, construction loans and to bridge a time when a person is experiencing credit challenges and could be facing a foreclosure. In addition, hard money loans are the perfect option for a buyer who needs to have a loan funded very quickly. Then once the purchase is completed, the borrower can seek a traditional loan to pay off the hard money lender.
There are several reasons that hard money is best only used for a short-term project. The first and most important reason is that the interest rate on these private loans often ranges from 10% to 15%. To put that amount into perspective, current traditional mortgage rates are ranging from about 4% to 6%. In addition to interest, hard money lenders will also charge borrowers points and other fees. Points equate to 1% of the loan amount per point. So paying 5 points on a $100,000 loan would be a cost of $5,000. Additional fees could include applications fees, processing fees, appraisal fees, and even funding fees in some cases.
Fast Is Good
There is no question that getting a loan application approved quickly is a huge benefit for most borrowers. This can ensure that you are able to purchase a great investment property or even your dream house. But you need to understand that you are going to pay a higher price for this fast loan service. So budget both your time and money carefully. Keeping a renovation project on time can be difficult but if it allows you to use hard money and remain in the time frame outlined in your loan terms, it is worth the extra effort and late nights to get the work completed.
Make a Good Choice
Understanding the terms of your loan and the total cost of the loan can help you to use hard money as efficiently as possible. Often times these short-term loans are only used as a bridge to allow for time to secure a traditional loan at a substantially lower interest rate and for a more appropriate length of time. But in other cases, these loans are perfect for a renovation or fix and flip project that is only expected to take a few months.
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis Dahlberg Broker/RI/CEO
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.