Hard Money Lenders -- No Money Down The Easy Way
Would it help you as a real estate investor to be able to"Close For Cash in Days," even if you're tapped outfinancially?
Hard money lenders are perhaps the best way to get 100%financing with easy qualifying, money for fix- up, and fastclosings.
So what can hard money lenders do for you? Hard moneylenders make relatively short term (12-24 month) loans toreal estate investors for the purposes of acquiring theproperty and rehabbing the property.
These loans are often funded by pools of private investorsthat have been grouped together into a pool of capital by alender.
The hard money lender is looking for maximum return, and iswilling to take more risk for this return in the form ofeasier lending standards.
If you strike the right purchase deal, you can even borrow100% of the purchase price plus some or all of your repairmoney by using hard money lenders. Here's how it works.
Hard money lenders typically loan 65% of the ARV or AfterRepair Value of the property when it is repaired or readyfor resale.
That 65% loaned by the hard money lender is calculated basedon the value of the property AFTER REPAIRS, not as itcurrently sits, and not based on the price is being paid forthe property.
For example, Say that the owner is willing to sell me his house for $60,000. The hard money lender's appraiser agreedwith my assessment that the home could be sold for $100,000 once it was fixed up. That appraisal would allow me toborrow 65% of the $100,000, or $65,000. I'm only paying $60,000 for the property, so guess where that extra $5,000 goes?
Unfortunately, not into my vacation fund!
The extra loan proceeds go into an escrow account held bythe hard money lender, and I can draw it out as I dorepairs.
Remember, hard money lenders are not concerned with yourpersonal credit to the level that traditional lenders are.They're concerned with the property. They know that theirloan is fairly secure if you default.
What's bad about hard money loans?
The fees are higher than conventional financing.
Hard moneylenders in my area charge 15% interest, and 5% ofthe value of the loan in closing costs ("five points").
Thus, on a hundred thousand dollar loan, there would be$5,000 in fees to the lender to close the loan, plusattorney's fees and other charges.
Secondly, the loans usually are only good for 12-24 months.After that time, you have to refinance. If you haven't soldit by then, you have to get a new loan, pay more fees, etc.These are not loans to buy rentals with.
Another disadvantage is the fact that most hard moneylenders don't figure the payments on a 30-year basis. Thelonger the payments stretch out, the cheaper the payment.They figure these loans on 15 or even 10-year terms. Thus,the monthly payment that you must pay is much higher than itwould be on a conventional 30 year amortization schedule.
Also, hard money lenders are often more difficult to findthan traditional funding sources. As a gift, I havecompiled a national list of hard money lenders at my site tosolve this problem for you.
Finally, most hard money lenders require a pre-paymentpenalty that must be paid if you refinance or pay off themortgage before a given amount of time. Fortunately, thistime period is often fairly short. For example, the hardmoney lender that I use has a two month pre-payment penaltyperiod. Even if I am not going to do much work on theproperty, and have a contract on it quickly, I can just setup the closing for after the pre-payment penalty expires.
In conclusion, hard money lenders present an attractiveoption for investors to succeed without having to resort tothe late night TV creative hype that we've probably all beenexposed to. If you can qualify for traditional financing,and your seller is comfortable with a longer closing window,you may want to stay with conventional financing.
However, if down payment money is tight and your credit isnot perfect, or you need to close very quickly, hard moneylenders may be a viable solution since they will allowalmost anyone who can find a good deal to purchase aproperty extremely quickly, with less red tape, get moneyfor rehab, and have virtually unlimited access to cash.
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David Wnisnant is a real estate investor and attorney in Atlanta, Georgia who teaches cutting edge real estate tactics specifically designed to increase the number of deals investors find, increase the profits from each deal with less risk. Download Dave Whisnant's FREE 50 state hard money lender list and forever banish the problem of where to find the cash for your deals! Go to http://www.realestateinvestingbrain.com/freehmlist.html
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