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Monday, December 10, 2018

THE DIFFERENCES IN CONSTRUCTION LOANS IN ARIZONA

A construction loan is just that—a loan for the construction of a property. Did you know there are two different types of construction loans in Arizona

Before you start shopping around for a construction loan you should know the differences.

Construction-to-permanent loans— these loans include the purchase of the land and the home. You will work with a lender to transition into a permanent loan after the construction is complete.

Construction only loans— these loans are short-term loans usually lasting between six to twelve months. Typically, they have adjustable rates that rise and fall with the prime rate. At the end of the loan you will pay it in full and then refinance into a conventional loan—conventional loans usually are between 15 and 30 years.

WHICH CONSTRUCTION LOAN IS BEST FOR YOU?

As all loans, there are pros and cons. Your job is to decide which loan you will benefit from the most.

1. Construction-to-permanent loan— You will only have one application since this is an all-in-one loan. You won’t have one loan for the land and another for the construction of the property. You will also save a tremendous amount of money in closing costs with this type of loan. It is possible that your interest rate will be higher with an all-in-one loan and you could be locked into that higher rate.

2. Construction-only loan— Using a construction-only loan you will be able to find any lender you choose when you transition into a permanent loan which will leave you with more options. However, during the term of the loan your interest rates are adjustable and depending on the market your interest could rise higher than you are comfortable with.

After you determine which loan is best for you, your next step is finding a lender.

It is important to shop around for a lender. There are questions you need to ask them to see if they are the right lender for your project. Most borrowers use hard money lenders for both types of Arizona construction loans. Make sure they are lenders that have experience with construction loans in Arizona. Ask them how long they have been doing construction loans. The range of loan-to-cost (LTC) that is typically required for these loans is between 5%-20%. Find out what they require. Have them explain a draw disbursement system and a draw system—and ask them which would be the best for your project. And, of course always inquire about interest rates, fees and flexibility in loan terms. Every lender is not right for every borrower. One main reason investors regularly go through a hard money lender is their flexibility and required credit score. Since these lenders are backed by hard assets, your credit is not as important to them as it is to a bank when lending you a conventional loan. Make sure, before you run out and find land and a crew, that you get pre-approved for you loan. This will usually only take about five minutes. Hard money lenders can usually disperse funding in less than 15 days.

Dennis Dahlber Broker Ri CEO Level 4 Funding LLC Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com
Dennis Dahlberg Broker/RI/CEO

About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

WHY USE AN ARIZONA BRIDGE LOAN?

A Arizona Bridge Loan is a loan that a borrower takes out against their property to finance the purchase of a new property.

A Arizona Bridge Loan is also known as a swing loan, gap financing or interim financing. They are typically taken out when a borrower is upgrading into a bigger home but their current home hasn’t sold. It literally “bridges” the gap between the time the old home is sold and the new home is purchased. Another way people deal with these situations is when a seller agrees to a contingency. But, many times the seller won’t agree to the contingency; a contingency is a contract that allows the buyer to agree to terms if certain actions occur. When a seller won’t agree to a contingency a Arizona Bridge Loan comes into play. The buyer is able to purchase the new property before the old property is sold. In a competitive housing market bridge loans become very useful for a borrower.

HOW DO BRIDGE LOANS WORK?

If a borrower currently has property up for sale, but wants to buy new property, knowing that the money from the current property they own will be paying for the new property, they would take out a bridge loan. It helps finance a new purchase so that property can be purchased before the sale of the old one. A Arizona Bridge Loan will pay off all existing liens and will use the excess funds as a down payment for the new property. Usually what this means is that you won’t make a payment on your Arizona Bridge Loan before your old property sells—instead you will be able to continue making payments on your current mortgage. Once, your old house sells you will use that money to pay off the bridge loan. These loans are usually the most popular when the housing market is hot; because there is so much competition for homes and sellers usually don’t have to agree to contingencies to sell their property. Bridge loans can be any size. Bridge loans are generally given through private money lenders, commonly called hard money lenders, who have more flexibility than banks and conventional loans.

Hard money lenders will work with borrowers looking for a bridge loan. But, how does this work?

Hard money lenders secure short-term loans by property. Since there are assets securing the loan, a high credit score is not necessary for approval of the loan. Hard money lenders will structure repayment and property repayment terms that are beneficial to both the borrower and the lender. Because hard money lenders do not have to adhere to the same requirements as banks there is much more flexibility in terms of the loan. Borrowers can choose to repay the loan before permanent financing is secured or after. Lenders will range in interest rates—generally between 7% and 15%. However, all bridge loans are short-term; ranging from six months to twelve months.

ALL ABOUT ARIZONA HARD MONEY LENDERS

You’ve heard about them—but what exactly is the 411 on Arizona hard money lenders? What is the difference between hard money lenders and bank lenders? What is the purpose of Arizona HARD MONEY LENDING? And, when would a borrower use a hard money lender?

Arizona Hard money lenders are investors who make loans that are secured by real estate. Typically, the interest rates are higher than conventional bank loans—however, hard money lenders will approve loans that most banks won’t. Their process is simpler and requires less paperwork than banks. The best part—funding generally happens within two weeks.

There are many differences between Arizona hard money lenders and bank lenders. The main difference is hard money lenders fund more quickly—with less requirements than banks. Hard money lenders are asset-based lenders—meaning their focus is on collateral, unlike banks that require excellent credit, consistent monthly income and assets.

If a borrower defaults on the loan the hard money lenders will foreclose on the borrower’s property in place of repayment of the loan.

WHY DO WE NEED ARIZONA HARD MONEY LENDERS?

All types of borrowers use Arizona Hard Money Loans. Even developers with strong credit, who would normally gain approval from a bank, choose Arizona Hard Money Loans over conventional loans. There are many situations where it makes more sense to use a hard money lender.

* An investor needs a quick closing and banks cannot fund quick enough.

* When an investor has an investment opportunity but does not have what is required to get bank approval.

* When a borrower only needs the loan for a short period of time and does not want to be penalized for early payment

* When a borrower is approved by a bank loan or line of credit—but needs more than what they are approved for.

Basically, if an investor finds opportunity and needs funding quickly or the investor cannot get bank approval, a hard money loan can help them generate a handsome profit or savings.

Arizona Hard Money Loans are also called private money loans, short-term loans, Arizona FIX AND FLIP LOANs, asset-based loans and bridge loans.

Advantages of Arizona Hard Money Loans are the reliability, quick funding, structure and flexible underwriting.

WHAT YOU SHOULD KNOW ABOUT RENTAL PROPERTY LOANS

If you think getting a loan for an investment property will be as easy as it was when you got your mortgage—you’re wrong.

Buying an investment property loans in Arizona for a rental home is a fantastic way to add income—however, the problem lies in approval for that loan. Lenders are much more strict in their underwriting when it comes to investment properties. This is because borrowers will default much quicker on an investment property loans in Arizona than they will on their home.

If you are new to real estate investing there are a few things you need to know about the difference in an investment loan from a primary home mortgage. If you are planning on obtaining conventional financing then plan on putting down a minimum of 20% of the purchase price. The more you can put on a down payment the lower your interest rates and fees may be. You can also expect to add between 1-3 more percentage points than an owner-occupied loan. Your credit score is of utmost importance to the lender, as well. Banks like to see at least a 750 FICO score—anything lower than that, expect higher interest rates. Your loan option pool will become smaller depending on how many mortgages you have on your credit report. In fact, once you have four mortgages on your credit, conventional lenders won’t fund you anymore.

RENTAL PROPERTY LOAN OPTIONS

Conventional Bank Loans— This is a loan that conforms to guidelines established by Fannie Mae and Freddie Mac—these are the strictest of guidelines in the lending business. While equity builds faster because a higher down payment is required up front—the higher down payment makes it quite difficult for newbie investors.

Small Banks/Credit Unions— You will work with a small lender that will keep your loan in-house instead of selling it to an investor. These institutions will be more willing to finance to drive investment in your area—but, many won’t lend outside of your geographic area.

Owner-Occupant— Purchasing as an owner-occupant means you will buy a property with more than one unit and you will reside in one of the units. In this scenario you may be able to get better loan terms and interest rates because, in essence, it is your home— however, a conventional loan will require a minimum of six months of reserves and most lenders want twelve months.

Hard Money Lenders— Hard money lenders are an asset-based loan where a borrower receives funds secured by property. Hard money lenders are private investors or companies. A borrower can negotiate a deal because there are no set lending requirements—qualification process is simpler and less time consuming than other lenders and there may be lower closing costs associated with the loan. Most of these loans are short-term, but can be refinanced.

When it comes to financing for an investment property loans in Arizona a conventional bank is usually not the answer.

Rental real estate can put you on the path to achieving wealth. Successful real estate investors know that the type of lender you choose is as important as the property you choose—choose wisely!

WHO ARE PRIVATE MONEY LENDERS IN ARIZONA RIGHT FOR?

Private money lenders in Arizona are often referred to as hard money lenders. They are non-institutional lenders that issue short-term loans for the purchase and or renovation of an investment property. They are right for numerous types of borrowers.

Historically, fix and flippers used private money lenders in Arizona more than other borrowers. Due to the short turn around of Arizona FIX AND FLIP LOANs, private lenders generally funded these types of projects. However, private money lenders in Arizona are also useful for other borrowers.

1. Long-term investors who don’t qualify for a conventional mortgage. These investors can use a private money loan and refinance once they meet the strict qualifications of banks.

2. Fix and Flippers who are looking to purchase, rehab and sell the property quickly—ideally, within one year.

3. Investors who need financing quickly—private money lenders generally fund within two weeks.

4. Airbnb investors who can’t qualify for a conventional loan.

PRIVATE MONEY LENDER IN ARIZONA INTEREST RATES AND TERMS

Private money lenders rates and terms can vary. Typically, the maximum loan amount is up to 90% LTV and up to 80% ARV. You can be approved for 100% financing—but, generally the down payment is up to 10%+ of LTV and up to 20%+ of ARV. Interest rates can vary widely—usually they are between 7% and 15%; and lender fees are around 1.5-10 points. The interest on a private money loan is assessed as interest-only—the borrower pays monthly interest payments throughout the loan term and makes a full repayment at the end of the loan. Depending on the lender there can be prepayment penalties— but most lenders do not impose these penalties.

The typical loan term is between one and three years; however, they can be as short as six months and as long as five years. Private money lenders can give you approval in as little as five minutes and funding usually occurs within two weeks. Credit scores are not as important because the loan is backed by the property. Because private money lenders do not adhere to conventional bank loan requirements they are generally very flexible in their lending terms.

What are the important qualifications in a private money lender in Arizona?

Look for a lender who has experience—the more deals they have done, the better. This information is usually found on their website. Private money lenders often specialize in specific areas of real estate and it will serve a borrower best if they use a lender that specializes in the type of property they are seeking financing. As stated earlier, private money lender rates vary. Find a lender with the lowest rates and easiest terms for your situation. There are plenty of lenders that do not impose prepayment penalties—make sure the lender you choose doesn’t have those penalties. The bottom line is there are different lenders for different borrowers—find the lender that works best for your specific purchase.

THE REAL DEAL ON ARIZONA HARD MONEY LOANS

Simply put, a hard money loan is a loan back by the value of the property versus the credit and income of the borrower. The property itself is used as protection against default by the borrower.

Arizona Hard Money Lenders are private individuals that see value in potentially risky ventures that traditional lenders are not willing to risk. These loans are a financing tool that every real estate investor should keep in mind.

Arizona Hard Money Loans have fast loan approvals and funding. Perfect credit scores and income history are not necessary to gain funding on Arizona Hard Money Loans. While conventional bank lenders are known to for their rigid rules and regulations, Arizona Hard Money Lenders are allowed to be more flexible in their loan terms because they don’t have to follow federal guidelines as banks are required to do.

HOW TO GET AN ARIZONA HARD MONEY LOAN

1. Research Arizona Hard Money Lenders in your area. Make sure the lender has a legitimate web site—be sure they will not just collect your information and pass it on to a third-party. Check that the lender doesn’t have any pending or former law suits from investors. Find out what types of projects the lender has financed previously. You want to make sure this lender will be interested in the type of project you are proposing.

2. Evaluate your time frame—Arizona Hard Money Lenders are able to generate funds within two weeks or less. Do you need funding immediately? A hard money lender will make that happen; while a traditional lender can take months to grant the loan.

3. Apply for the loan— Unlike a conventional loan—in a hard money loan you are financed on the collateral value of the property instead of your FICO score. That will require you to present certain documents—such as a detailed budget for construction, repairs and renovations. You will also need to prove the value of the neighborhood and the property—comps are sale prices of the neighboring homes and the lender will need to see those, as well.

4. Check for additional fees—Review the loan terms. Arizona Hard Money Lenders are not subjected to the regulations that banks are, so be sure you are protected legally. Be clear on all fees—if your lender does not disclose any fees that will be included in the loan that is a red flag. Make sure you are given a detailed repayment schedule—this will include how much interest will be accrued and how much of your payment will go towards the interest.

After you choose a Hard Money Lender and are approved it is imperative you move swiftly on your investment.

During the project you will only be required to pay interest. The balance of the loan is due at the end of the loan term. Arizona Hard Money Lenders do not typically impose prepayment penalties. The faster you complete your project—the quicker you can pay off your loan. There are so many benefits to a hard money loan—quick financing, flexible loan terms and asset based backing instead of personal credit history.