When first starting out in real estate investing, we all know one of the first struggles you encounter is financing. Most experts would tell you if you are just starting out you should steer clear of getting a hard money loan. In this article we are going to talk about all the things you need to know about obtaining a hard money loan for investing in a rental property.
Hard Money Advice For Rental Properties
Rental properties do not come cheap and a lot of investors don’t have large amounts of money on hand. So, most investors will apply for a mortgage. When applying for a mortgage securing the funds you need is a very lengthy process. Expect to be put through the ringer when applying for a mortgage by having your credit checked, your bank statements will need to be confirmed, and anything else bank related will also be checked. Any little blip the bank finds, you could end up not being approved for the mortgage. If by chance you do end up getting approved by the bank, it takes weeks or even months so actually secure the funds. Not to mention most banks want at least 20% of the property price upfront for a down payment on the loan. When you apply for a hard money loan for a rental property, they don’t require a down payment and you receive the full amount of the loan. Keep in mind, hard money loans always come with a higher interest rate than a normal mortgage. You should use a hard money loan for a rental as a bridge between securing
more permanent funds like a mortgage.
Hard money lenders that specialize in rental properties are professionals when it comes to lending money to investors for real estate. One of the first things you will need to do when borrowing money is to locate an investor and talk to them. Look for lenders in your area that are based on collateral. A good place to contact when trying to find an investor is your local real estate agents. They always know people that are in the hard money lending business. Once you are able to contact a lender, you can then discuss with them exactly what you need and ask any questions you can think of in order for the process to go more quickly and smoothly.
What You Should Know Before Getting Private Lending For a Rental Property
When dealing with a hard money lender, you will be directly communicating with them for rental properties. Hard money lenders don’t pay much attention to your credit score or how much
debt you have for a loan where as, a bank would for a normal mortgage. When buying a rental property with a hard money loan, you have to use a property that you own to put up as collateral for the loan.
Hard money lenders look at the value of the property in order to determine the amount of the loan. Make sure to establish a good standing relationship with your lender because this could determine
how quickly you get your funds. Normal turn around time for a hard money loan is anywhere between 3 to 10 days. With a mortgage it could be 1 to 3 months. Hard money lending is known as a relationship
based business. So, the better relationship you have with your lender the better deals you will get on interest rates, and lending fees.
Private money loans can range from 1 to 3 years. Most lenders try to keep their loans around the 1 year mark to try and cut down their risk factor. You can be pre-qualified for a hard money loan in a
little as three minutes and get funds within 10 days. This gives you the advantage to close on a rental property quickly. Having this advantage could give you the upper hand you need when getting into the
business of investing in rental properties.
Make sure before going into any deal weather it be a mortgage or a hard money loan you need to do as much homework as you can to make sure you get the best deal for you. Always ask as many questions
as you need to in order to be comfortable with the deal that you are going to be making. Also, dont just settle for the first lender you come across. Talk to as many as you can before you made a decision
on which one to go with. Remember this is a relationship based business, so the more people you meet and talk to the better off you will be.