Loans aren’t all created equally, and it’s important to know the differences when deciding which type of financing will best fit your needs. For many borrowers, the best financing is a hard money loan. Available from a variety of private lenders in California and across the country, hard money loans provide short-term financing for real estate investors. Of course, that’s just the basic definition. It helps to know more about this type of financing before deciding if it can meet your needs.
When To Use a Hard Money Loan
Hard money loans are typically considered a last resort for reasons such as not having a high credit score or needing funding faster than a traditional lender can give you a decision. Hard money loans San Diego are typically used by people who are buying properties that need big repairs, who are competing against cash offers for a property, or who only need the money short-term. Those with credit problems often rely on this type of financing as well. This is because the lenders look at the value of the property instead of the individual’s personal finances and credit history. As long the property will provide a return on investment, a hard money loan is likely to be approved.
How To Apply for a Hard Money Loan
If you don’t already have a hard money lender, you’ll need to find one. The realtor responsible for the property you hope to buy may have leads for you. When you do find a lender, the first step of the process is to make initial contact. When you do, save time by having all the information about the deal on hand. This includes the property’s address, its cost, any applicable construction budgets, how much you think it will be worth after renovation, and whether you intend to rent the property out or resell it. Although lenders are willing to work with new investors, they do consider experienced ones less of a risk. For this reason, expect to answer questions about your fix-and-flip experience, as well as your current finances and credit history (although it won’t be a major deciding factor).
Next comes the underwriting process. Speed is an important part of hard money lending, so expect this to begin within 24 hours. During this period, expect to provide a completed loan application, the property’s purchase contract, and an estimate of timing and costs for the renovation work. The underwriter reviews this information, schedules an appraisal of the property, and ensures the estimated value after repair matches what the investor estimated. You may need to provide additional documentation at this time, as well as background on the builder or contractor providing renovations. Once all information is received and reviewed, the underwriter will make a decision. If approved, he or she will schedule closing for the property.
When deciding to apply for hard money lending, be sure to work with a reputable private lender with experience in this type of financing. Verify credentials and references as well. Even if you aren’t ready to purchase a property yet, you can begin your lender search now, so you’ll be prepared in the future.