Real estate investors looking to fund a property often utilize hard money loans to close deals. Getting funds to buy a house isn’t always easy, especially from traditional money lenders. The process is lengthy, and time is of the essence in real estate investing.
Private land loans require a completely different application process from traditional loans. The lenders don’t need the same documentation as banks, and the entire operation requires only several crucial steps on your side.
We’ll start from the beginning:
Sometimes, real estate investors have no other choice than private money loans because traditional banks aren’t interested in specific investments. Flipping houses for profit is one of those types due to the high risks involved.
Flip and flop loans don’t fit in the business model of traditional banks. They don’t care about short terms – they prefer lengthy loans of at least 15 years instead. Banks aren’t fond of risks, and taking on such an investment seems too uncertain for them.
However, private money lenders are willing to take that risk, which is why they ask for higher interest rates compared to traditional loans. They approve the funds much quicker, require less documentation, and offer a short repayment period, offering an excellent alternative for investors.
For many investors, hard money loans are the only way to go. But, if you’ve never applied for private funding before, make sure you check all the facts before you take any action.
Before asking for a private loan, consider all the pros and cons of applying for one. Personal loans are primarily short-term investments, and they generally last for around 12 months.
Will you have the finances to repay the loan within a year? Do you have a precise plan for the property that forecasts a successful sale within 12 months? You need to consider every aspect before you commit to a hard money loan.
Find a Reliable Private Lender
Put your mind into researching private lenders in your area. If you’re looking for a hard money lender because a bank has rejected you, you may want to go to the first lender you come across. However, it’s essential to do your research and resist the temptation.
Not all lenders are the same. Some of them focus on specific categories only, while others offer out-of-the-roof interest rates. While there are many reliable private lenders, there is no way of knowing which one fits your needs unless you do some research.
The goal is to find a genuine lender with a legitimate website and a good standing with other investors. Ask around, use Google and other people’s recommendations, and take your time when choosing the right lender.
Research the type of projects a specific lender usually funds and try to get other investor’s opinions before making a decision.
The most important aspect of the application process is to successfully present the value of the property you’re out to purchase. You need a solid financial plan for your entire project.
Hard money lenders focus on the collateral value of the estate rather than your credit score.
Unlike traditional banks that ask for income and credit documentation, private lenders ask for documents like architectural plans, construction budgets, contractor bid sheets for renovations and repairs, etc.
They need proof that your property is valuable enough to cover the necessary costs of the loan, so that’s what you need to prepare for them.
Here is a quick sum of the most critical aspects of the application process:
- The lender wants to know they’re making a safe investment
- The borrower needs to prove the value of the estate in mind and the value of the surrounding neighborhood.
- Borrowers who have a history of real estate investments may have better chances of getting a loan because the loan is aimed at successful real estate investors. Show your previous projects if you have any.
- It usually takes only several days for the lender to give you an answer.
You must be ready to move fast when you apply for a hard money loan. Some lenders approve the loans within only a week, and with short terms, you won’t have much time to lose.
As an investor, you should prepare all of your documentation and line it up correctly so you can quickly start using the loan. Your entire team should know a specific time frame of when the action will begin. With private loans, it’s usually a matter of two weeks tops.
You’ll most likely have to sell the property within a year, so you must be ready and efficient.
RBI Mortgages private loans offer convenient residential and commercial loan programs many investors and home buyers find useful. Contact us to learn how we can help you get finances for buying a house.