Many people wonder what a hard money loan looks like as a financing option for investors. This type of loan is in high demand among investors because it usually comes with many different loan options. The lenders offer quick access to funds for respectable borrowers to close deals and invest in properties.
Hard money loans are necessary for the current real estate marketplace. Many investors wouldn’t have a chance to enter the market if they didn’t have private money lenders to help them out. The main reason for this is the excessive underwriting requirements from conventional lenders. However, the speed of approval is another significant factor in choosing the right financing option.
A lender can approve a hard money loan within several days. It allows the investor to close a deal quickly and get the property they want before their competition. Moreover, hard money lenders are willing to invest in properties that need repairs.
The flexibility of hard money loans is one of their most vital points and an important reason why so many investors choose this type of financing. Investors are interested in buying properties that require serious repairs or need quick refinancing on real estate they’ve already repaired and prepared for rentals.
Private money loan terms may vary significantly from one lender to another. They also differ geographically, but the average interest rate goes from 7% to 12%. The loan origination fee is usually between 1% and 3% in all regions.
One doesn’t have to have a brilliant credit score or provide excessive documentation and personal information to apply for a private loan. The property itself backs up the loan and serves as collateral.
Let’s go through some private money loan examples, so you’ll get an idea of what they are used for and who benefits from them.
Investors who work with commercial real estate always seek the fastest possible closing option. Private loans allow them to buy commercial properties within several days of applying.
For example, RBI Mortgages is a hard money lender in Miami that offers competitive rates and fast closing. Their essential loan criteria include fixed rates starting at 8,5% with a maximum of 60% LTV. There is no prepayment penalty and you only pay interest in monthly payments. A balloon at maturity and loan amounts anywhere from $100,000 to $10,000,000 attract many investors.
The property types this type of loan is used for include hotels, offices, multifamily apartment buildings, warehouses, restaurants, and other commercial property types. Several types of commercial loans are available, including purchase, refinance, and cash out.
Also known as bridge loans, residential loans are a perfect solution for secondary homes and investment real estate. The usual borrowers for residential loans are those who need cash to invest in a second home or need fast closing.
At RBI Mortgages, the loan term for residential loans can be one, two, or three years. The fixed rates start at 7,75%, and just as with commercial loans, there is no prepayment penalty, and the payments include interest only. Loan amounts start from $75,000 and go up to $10,000,000.
This loan type is suitable for properties like condominiums, multi family homes, single-family residences, buildings that have two to four units, condo-motels, and many others. Three residential loan types are available: cash out, purchase, and refinance.
Fix and Flip, Fix to Rent
Investors, both new and experienced, are always on the lookout for the best property on the market. They usually need cash fast, so they buy one as soon as it comes out for sale, especially for residencies good for fix and flips. Investors looking to buy a property to fix and flip or rent find these loans very useful.
The essential loan criteria include fixed rates that start at 8,5%. The term goes from six months to two years, and the loan consists of an after-repair LTV of up to 70%.
With loan amounts starting from $75,000 and going up to $10,000,000 and flexible terms, investors find this type of loan extremely useful. Property types for these loans include townhouses, two to four units’ buildings, single-family residences, etc. Cash-out, refinance, and purchase is available as loan variations.
Getting a Loan
The first step to getting a loan usually includes filling out an online application and waiting for a short time (usually 24 to 48 hours) for a loan processor to get back at you. After they approve the loan, the average closing time is five to ten days on residential loans and ten to fifteen days on Fix and Flip and Fix to Rent Loans. For commercial loans, the approval time depends on environmental conditions, appraisal, and property title.
Applying for a loan takes a lot less documentation than a traditional loan application would require. It takes less time to get approved and comes with other perks including flexible terms. Those are all valid reasons for real estate investors to choose this financing option.