How To Get Hard Money Rehab Loans For Renovation?

by Olivia Clark Finance Manager

Nowadays, Housing investment is at its highest level, thanks to the increase in housing prices and the greater availability of financing. What's more, hard money rehab loans helping the customers to get more profit now than they were getting after the housing crisis, when foreclosures flooded the market.

While buying, fixing and quickly reselling properties can be lucrative, it takes a lot more money to change a house than simply buying a house where you want to live. Not only do you need the cash to become owner of the property. As an owner, you also need renewal funds plus money to pay property taxes, utilities, insurance and loan interest from the day the sale is closed through the rehabilitation work and until the day of sale.

If you do not have your own money to invest, starting with the hard money loan. Even with a down payment, you will pay more when you are borrowing money to finance a currency exchange than when you are borrowing to buy a primary residence: lenders believe that investing is a riskier proposition. They will want to see that you have a successful record of launching at least one house and will not make exceptions. Others will work with an inexperienced flipper, but will charge higher fees until that person develops a successful career.

If you are interested in going around houses but you are not a cash buyer, here are some options to finance the effort.

Get a Hard Money Loan

Experts do not agree on exactly what "hard money" means. Some say it refers to the fact that it is much more expensive than traditional financing and has "tougher" terms. Others say it is because it finances houses that are "difficult" to finance for conventional lenders. Others say that the term describes the loan guarantee: a strong asset, which in this case is a real estate.

How these loans work

Hard money loans generally have terms of less than one year and interest rates may be 12% to 18%, more than two to five points. One point equals 1% of the loan amount, so if you applied for $ 10,000 and the lender charged two points, you would pay 2% of $ 12,000. Instead of paying points at closing, As you would with a conventional mortgage, with a difficult money loan, you may not have to pay points until the house is sold, which can help you finance a change without putting your own money.

Hard money lenders base the amount you can borrow on the post-housing renewal (ARV) value. If a home costs $ 50,000 but the ARV is $ 100,000 and you can borrow up to 70% ARV, then you can borrow $ 10,000. After paying the purchase price of $ 50, you will have $ 20, 000. for closing costs, lender fees, rehabilitation, maintenance costs and sales expenses such as staging fees, marketing and real estate agents. If you can maintain that budget, you will not need any money from your pocket to change the home.

Hard money loans versus conventional loans

Hard money loans are the most popular and fastest way to get money for a Rehab, since there is no bureaucratic bureaucracy.

Unlike conventional lenders, such as banks, they are not bound by the guidelines on the condition of the property or by the qualifications of the borrowers, such as the debt / income ratio and the credit scores. If the purchase and repair costs against the resale value make sense and the borrower is reliable, a hard money lender will make the loan. In case of failure of the flipper, the hard money lender can foreclose, take possession of the house and sell it profitably on their own.

In some cases, hard money lenders will want to see documents like tax returns, bank statements and credit reports, but it depends on the lender. Another difference between conventional lenders and hard money lenders is that the latter do not care if the advance funds are borrowed.

A hard money lender, similar to a bank, will keep the lien on the first position in the home until the borrower repays the loan, but the borrower will own and have the deed.

Where to look for Hard money lenders

Internet is the best place to find a hard money lender. You can choose a Hard money lender to get hard money loan. Because Hard money lenders may be more willing to negotiate the terms of payment. They may even be willing to act as partners in the deal and take a share of the profits in exchange for not charging interest to the borrower.

If you do not have a rich uncle, you can look for Hard money lenders at local real estate network events. These people can charge 9% to 11%, more than zero to two points compared to 10% to 15%. Like a bank, they will take a lien on the first position in the house.

Conclusion

If you do not have enough cash to invest one Without financial help, or if you have cash but want to limit your risk, there are several ways to obtain financing. A hard money lender, a private lender or a real estate crowdfunding site can help you achieve your real estate investment dreams. All of these options are expensive compared to traditional mortgage financing for an owner-occupied home, but their price reflects the high risk that the lender assumes and the improbability of obtaining a low-interest bank loan to change a home. But using other people's money not only allows you to get started in the investment business when you have little or no cash to invest, but it also gives you the opportunity to invest more properties simultaneously and increase your total profits once you gain enough experience to conduct multiple businesses. It is very easy to find money for a good business, but it is very difficult to find great deals.