If you’re like many investors, you’ve heard of hard money loans. But how do they work, and could one of them be right for you? This guide explains.
How Does a Hard Money Loan Work?
Money loans work a lot like regular loans do, but there are some key differences. First, you can get the cash from a hard money loan much more quickly than you could if you were to borrow from a traditional lender. Additionally, your interest rate will likely be a little higher, and you’ll have to repay the loan much faster than you’d have to repay a traditional loan.
The way a hard money loan works is that you approach a hard money lender and ask to borrow a certain amount of money. You can ask a hard money lender to borrow enough money to cover the cost of repairs on a house that you intend to fix up and flip. The hard money lender then evaluates several factors, including what the home is likely to be worth after it’s repaired; this is commonly known as a home’s after repair value.
What Are Average Hard Money Loan Terms?
Hard money loans are short term. They may last six months, a year, or even a couple of years. The terms are between you and your lender, but you shouldn’t expect to borrow a hard money loan and repay it back over 30 years.
What Are Average Hard Money Loan Interest Rates?
Hard money loans typically come with higher interest rates than conventional loans do. However, this is fine for most investors, because they intend to fix up and flip properties quickly. They then use the profits from the sale of the home to repay the loan in its entirety.
What Kind of Down Payment Do You Need for a Hard Money Loan?
Most hard money lenders require borrowers to come up with some money for a down payment. However, unlike conventional loans, hard money loans typically require borrowers to come up with a down payment based on the after repair value of the home. That means if you’re borrowing to purchase a home that will be worth $150,000 after it’s repaired, your down payment will be based on that amount. The amount of a down payment that you need depends on your lender, and the best way to find out how much money you’ll need to come up with is to get in touch with a hard money lender.
How Soon Do You Have to Repay a Hard Money Loan?
Hard money loans have shorter lifespans than conventional loans do. You can expect the terms to last between six months and a few years. You should talk to a lender about your specific needs.
Who Are the Best Candidates for Hard Money Loans?
The best candidates for hard money loans are people who want to borrow for a short period of time. Often, investors are a great fit.
Do You Need a Hard Money Loan?
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