Is It Wise To Finance Real Estate Deals With Hard Money?

A lot of the “real estate investment guru’s. These “experts” say that it’s better to invest with other peoples money because then you get a greater return on your investment. In my opinion, if you don’t think a real estate investment is good enough to use your money, you probably better not ask others to invest their money. But that’s not the point of this article, today we will talk about hard money.

Privately funded loans with high interest rates and fees intended for temporary financing are known as hard money loans. These loans aren’t hard because they are hard to get, but because the terms of them are very “hard”. It’s not cheap to get hard money loans. They typically have an upfront origination fee of three to four points, plus 12-18% interest.

The main difference between hard money loans and traditional mortgage loans is the criteria used to determine finance worthiness. The loan worthiness for traditional financing is determined by the borrower. The lender will only loan money if the borrower has a good credit score, a low debt to income ratio, and a consistent stream of income in which they will be able to pay for the debt. The focus of hard money lenders is the property’s lending worthiness or value. If the value of the property is substanitally more than the amount lent, a hard money loan will usually fianance. If the borrower doesn’t pay the hard money loan back, the hard money lender forecloses and now owns a property with a significant amount of equity.

Hard money loans can be useful, and can be very valuable for investing in real estate. In order for many real estate deals to happen, the invester must have the financing within a few days. They must aquire loan money quickly. A good Virginia hard money loan can be obtained within just a few days. If the property purchased really is a good real estate investment, and the buyer has a good timely exit strategy, then even though the borrowing cost may be high, the profit made is worth the cost. The important thing isn’t how much money the investor spent, but how much money the investor made.

Lets say a real estate investor borrowed $100,000 at 10% interest, flipped a property, and then sold it for $140,000 six months later. If there up front fee was three points on top of then to the interest paid. Despite paying the hard money lender nearly $10,000, the real estate investor would still have a profit of about $30,000..

Real Estate investors can benefit from hard money loans, but need to be careful with the way they use them as the costs are very high.

Is It Wise To Finance Real Estate Deals With Hard Money?

A lot of the “real estate investment guru’s. These “experts” say that it’s better to invest with other peoples money because then you get a greater return on your investment. In my opinion, if you don’t think a real estate investment is good enough to use your money, you probably better not ask others to invest their money. But that’s not the point of this article, today we will talk about hard money.

Privately funded loans with high interest rates and fees intended for temporary financing are known as hard money loans. These loans aren’t hard because they are hard to get, but because the terms of them are very “hard”. It’s not cheap to get hard money loans. They typically have an upfront origination fee of three to four points, plus 12-18% interest.

The main difference between hard money loans and traditional mortgage loans is the criteria used to determine finance worthiness. The loan worthiness for traditional financing is determined by the borrower. The lender will only loan money if the borrower has a good credit score, a low debt to income ratio, and a consistent stream of income in which they will be able to pay for the debt. The focus of hard money lenders is the property’s lending worthiness or value. If the value of the property is substanitally more than the amount lent, a hard money loan will usually fianance. If the borrower doesn’t pay the hard money loan back, the hard money lender forecloses and now owns a property with a significant amount of equity.

Hard money loans can be useful, and can be very valuable for investing in real estate. In order for many real estate deals to happen, the invester must have the financing within a few days. They must aquire loan money quickly. A good Virginia hard money loan can be obtained within just a few days. If the property purchased really is a good real estate investment, and the buyer has a good timely exit strategy, then even though the borrowing cost may be high, the profit made is worth the cost. The important thing isn’t how much money the investor spent, but how much money the investor made.

Lets say a real estate investor borrowed $100,000 at 10% interest, flipped a property, and then sold it for $140,000 six months later. If there up front fee was three points on top of then to the interest paid. Despite paying the hard money lender nearly $10,000, the real estate investor would still have a profit of about $30,000..

Real Estate investors can benefit from hard money loans, but need to be careful with the way they use them as the costs are very high.

125 Secured Loans as an Option for Homeowners

Lenders have started to offer only recently 125 secured loans to homeowners who want to get a second mortgage. Homeowners now have a new financial alternative for getting a second mortgage on their homes. This kind of loan allows the homeowner to be given a loan amount that is 1.25 times the home’s appraised value. This is to be contrasted to the usual home equity loan that only provides 75 to 80 percent of the home’s estimated value. Of course, any unpaid amount in the original loan will have to be deducted from the computed total value.

The existence of 125 secured loans is quite astonishing because a substantial part of the loan is not covered by a collateral. What this means is that the extra 25 percent is risky for the lender. To try to make up for the additional risk, the lender will ask for a higher interest for the loan value. The borrower would be wise to consult some experts on the matter before proceeding with the loan because there are also other disadvantages that will be seen later.

The lender will often examine the credit score of the homeowner to find out if he is qualified for the 125 secured loan. It is usually the case that a minimum credit score will be required by the lender to try to increase the chances that the borrower will be able to pay the loan. He will also look into how long the homeowner has been living in that particular home to be able to estimate the appraised value. The length of stay in that home should be at least three months for the owner to be considered eligible.

If the owner has been living there for more than a year, the lender will look into the tax assessments to determine the appraised value. If the owner has been staying in that home for about one year, the lender will use the purchase price as basis for calculating the loan amount. Sometimes the lender will utilize computer estimates using the Automated Value Model (AVM) that is dependent on similar purchases of homes within that specific neighborhood.

What are the other downsides of 125 secured loans aside from more interest charges? It would be hard to sell the property because the extra 25 percent amount that is not secured by the home would have to be paid. Aside from that, he would not be allowed to consider the interest that he pays for the 25 percent extra amount as expenses when preparing his income tax returns. For more real estate funding alternatives click here.