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Sunday, January 6, 2019

ARIZONA RENTAL PROPERTY LOANS

Each state has different processes and laws for buying rental properties. This article will reflect Arizona specifically.

So, you are considering buying an investment property in Arizona—and you are wondering what the process looks like. The first thing you need to do is determine your budget. Keep in mind that this will be a home for someone other than yourself and so it must meet certain criteria—this usually means you will need to make some repairs and upgrades on it. When obtaining financing these rehabilitation costs need to be included.

Once you find a property—the next step is negotiating a price. After that, you will have a home inspection process and appraisals. But, unless you have cash—where is this money coming from?

TRADITIONAL LENDING VERSUS HARD MONEY LENDING FOR ARIZONA RENTAL PROPERTY LOANS

So, you have been pre-approved by the bank, but now you must go through the long, tedious process of obtaining approval. Using traditional funding is a lengthy process that can easily take up to 90 days—banks have a very strict underwriting process that slows everything down. Many times, investors lose the property to a cash buyer. The problem borrowers run into with investment properties is these are non-owner occupied loans—meaning the owner will not live in the home. There are some specifics you ought to be aware of. First, you will certainly have a higher interest rate and closing costs will be higher, as well. Your down payment will be much higher than your owner-occupied home, also. With conventional mortgages banks will require that borrowers maintain a certain amount of money in reserve at the time the loan closes—reserve requirements typically range from two to six months of total monthly housing per property—think how much that will be after two or three investment properties.

Many investors choose hard money loans for rental properties. With a hard money loan chances are your down payment will be smaller and it is possible you could have no required down payment. The approval process is quick—it is possible to receive same day approval and funds within a week. An investor can compete with all cash buyers easily using a hard money loan. You are also able to borrow more with hard money lending. When banks require your down payment that is their security threshold. With hard money lending for an Arizona rental property, the security is backed with the property.

Hard money loans can be a great starting point for Arizona investors.

Hard money loans can be extremely helpful if you do not have the large down payment required for an Arizona rental property or the time to save money for the down payment. They can also be beneficial for competing with cash investors. Arizona Hard Money Lenders can help you through the process and start expanding your real estate investment portfolio.

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.

What Are Bridge Loans

Understanding the purpose of Arizona bridge loans can offer home buyers many options if their current home is still on the market. These temporary loans can help to coordinate your finances between buying a new home and selling your current one.

There are many events that must fall into place when you are in search of a new home and wish to sell your current home. And very rarely does everything work on the perfect timeline for you to sell your house before you need to purchase the new house. But buyers can use Arizona bridge loans to secure their dream home while waiting for their current home to sell.

What you are really doing with a bridge loan is borrowing the money for the down payment on your new home which would have been funded via the sale of your current home. Most home buyers, other than first-time buyers, rely on the equity they have in their current home to make the sizable down payment on their new home. So in a sense, Arizona bridge loans are designed to be short-term loans.

The qualifications for Arizona bridge loans are not the same as a standard mortgage. It’s assumed that if you have a current mortgage on your home then you have decent credit. What the lender is more concerned with is your ability to make both mortgage payments until your first home is sold. The lender will evaluate your income and the total of the two mortgage payments to decide if you are able to carry both mortgages. If the numbers work out then most lenders will fund requests for Arizona bridge loans.

The Cost of A Bridge Loan

Rates and terms can vary depending on the lender. In many cases, the lender will offer borrowers a payment schedule with the first payment being due several months after the loan is funded. This allows the borrower time to sell his or her current home without having to make payments on the bridge loan for a few months. But there is interest accruing from the day that the loan is funded. Then the borrower pays that interest when the loan is paid off. The goal is to sell the home quickly and only be required to pay a month or two of interest but in a slow market, the bridge loan could extend for a longer period of time which would require the borrower to make payments.

Risks and Rewards

The greatest reward offered by a bridge loan is that buyers are able to purchase a new home without having to wait for their current home to sell. That is important if the market is very competitive or if the inventory is very limited. The drawback is that the borrower will be paying two mortgages until their old house sells. And if the house does not sell soon after the new home is purchased, borrowers could be facing two mortgage payments plus the payment on the bridge loan each month. The result could be a very tight budget until the original home is sold.

THE REAL DEAL ON ARIZONA HARD MONEY LOANS

Hard money refers to capital available outside of traditional lending institutions. A hard money loan is secured by the borrowers real estate assets. Investors use the loans to acquire needed capital to purchase or renovate a property.

Arizona Hard Money Lenders are private individuals or groups that have available capital for loans. Lenders primarily loan in certain geographic locations and have more lenient underwriting criteria. The main criteria is that there is a reasonable loan to value (LTV) and defined loan terms. These lenders are investors themselves and their investment comes in the form of the interest accrued on the loan. They are seeking better returns than traditional investments such as stocks and bonds.

Because Arizona Hard Money Lenders are not required to follow federal banking regulations they approve and release funds much quicker than traditional lenders. Although, they have an underwriting process, it is much simpler and requires much less documentation. Most lenders do not require tax returns to prove property is generating income—many borrowers run into this when dealing with a bank. Banks require all documentation of all properties and the income on tax returns. This can slow the approval process down tremendously. Most Arizona Hard Money Lenders can give immediate approval and funding within a week—whereas, a bank can easily take up to 45 days.

ARE ALL ARIZONA HARD MONEY LENDERS THE SAME?

Absolutely not. Because Arizona Hard Money Lenders are private lenders each has their own set of rules. Many lenders choose to only work locally, some choose a certain geographic area and others work nationwide. There will be some lenders that focus solely on fix and flips while others have a wider spectrum of specialization.

Just as Arizona Hard Money Lenders have different styles—they have different lending practices, as well. Lenders vary in the fees and expenses they asses. Some work with a higher LTV while others charge for preparing documents. Flexibility is a key component of the hard money lending business. Lenders can work loans on a case by case scenario. Although, they have their lending terms and requirements they can differentiate terms amongst borrowers.

Make sure you research lenders, as they are all very different and have different rules and regulations. For example, many lenders do not have prepayment penalties—others may. When inquiring about lenders make sure to ask about any fees that will be part of the loan. Don’t forget to gain a full understanding of late fees, as well.

Although, these loans are backed by the borrower’s property versus their credit and income—Arizona Hard Money Lenders do not want to have to foreclose on a property. In the case of default, a reputable lender will try to avoid foreclosure at all possible costs. When a borrower misses a payment, lenders will reach out and attempt to work with them. The key is communication. As in any financial situation where money has been borrowed—if you can’t make a payment, make a phone call and arrangements. Veteran lenders have dealt with this and can work with you to make your payment.

When you work with a Arizona Hard Money Lender, you are working with a person—not a team of faceless bankers.

Forming a personal relationship with your lender is the biggest benefit of hard money lending. You are both making the same investment and your lender wants you to succeed as much as you want to succeed. It’s a win-win when teaming up with a Arizona Hard Money Lender.

What Are Arizona Construction Loans

Building a new home is very exciting. But for most homeowners, the process is not possible without an understanding of an Arizona construction loans and how to properly use them.

1. Going to the bank to get a home loan is a nerve-wracking process but one that many people are familiar with. The loan approval is based on the borrower’s creditworthiness but also the value of the property that the borrower wishes to purchase. This is because the value of the property represents a certain level of security for the lender. In the event that the borrower defaults on the loan payments, the lender is able to recover some or all of their investment by taking possession of the property. But in the case of building a new home, there is no existing property to be used as the collateral for the lender. In these cases, construction loans Arizona are used to fund the building of the new home.

There are two types of Arizona construction loans that borrowers can choose from. The first is a construction-to-permanent loan which pays for the construction of the home and then the lender converts the loan balance to a more traditional mortgage. The second option is a stand-alone construction loan. This is exactly what the name implies. The loan pays off the construction of the home only. When the borrower’s home is completed, he or she must finance a traditional mortgage to pay off the balance of the construction loan.

Securing a construction loan is more challenging than qualifying for a traditional mortgage simply because there is no real property to uses as the collateral for the loan. Lenders will want to know all of the standard loan information about the borrower but they will also want to know a great deal about the proposed home. Information regarding the size of the home, the material being used for construction and the contractors and subcontractors who will be doing building the home. All of this information allows the lender to project the potential value of the completed home and the security that it would represent if the borrower defaults.

Proof of Funds

In addition to having a good credit score and the home having a good market value, the lender will require borrowers to show proof that they have a good amount of savings for construction overruns or contingencies. There is not a specific number or percentage that all lenders require for construction type overages, so borrowers will want to verify with each lender what is recommended.

The Process

Construction loans in Arizona hold much more risk for lenders, therefore they are more expensive and will include more inspections and contact throughout the construction process. Lenders want to see continual progress on the project, only standard building methods and practices and quality workmanship from the contractors. If building your new home is your dream, then be certain to complete your research to know the requirements and process for securing a construction loan. You will face more scrutiny when seeking the loan but your custom home is certainly worth the extra effort.

HOW TO FIND A ARIZONA HARD MONEY LENDER

Private money lenders, more often referred to as Arizona Hard Money Lenders, are private financial lenders. Unlike conventional lending institutions, who focus, on you credit score, they put their focus on the property you want to finance and asses the risk of the deal.

While your credit may not be a noteworthy component your past performances are significant. Arizona Hard Money Lenders want to feel certain that the investment they are undertaking will be paid back in full. It is valuable for a real estate investor to find a lender they can work with well because, as lenders get to know a borrower they are more apt to continue business with them. Typically, because Arizona Hard Money Lenders have flexibility, the more an investor works primarily with one the better rates that borrower will obtain in the future.

THE MISSION OF FINDING THE BEST ARIZONA HARD MONEY LENDER FOR YOU

The easiest way to begin your search for a Arizona Hard Money Lender is online. If you aren’t already familiar with the fix and flip industry, you can search for a local lender online. It can’t be stressed enough how crucial it is for you to research—especially when you are first beginning with fix and flips. Make sure, while you are searching online, that the lender has a professional online presence. They should advertise their rates, have testimonials and have contact information—including a local phone number.

An excellent way to meet local lenders is attending real estate networking events. Because in this profession you will always need to count on others to complete successful endeavors. There is no “I” in real estate. You will generally find more success with local lenders because they understand the geographic market and which properties have opportunities for the best returns. You also want to make sure that your lender specializes in the type of projects you are interested in— for example, fix and flip or construction.

Word of mouth can be a great way to find a lender. Chances are you have become interested in this industry because of someone you know that has experienced success with it. Ask them about their prior financing and who they used. If you don’t know someone in this business you probably know a broker or an agent or even a neighbor that knows someone who knows someone. Word of mouth gives a bit of comfort because it is a real person that you, or someone whom you know, has done business with—giving you the chance to receive feedback on the lender. Just keep your eyes and ears open and ask around—social media is a great way to get a referral, as well.

Arizona Hard Money Lenders each have their own set of rules. Even though they are flexible, they will offer different loan terms.

If you are interested in learning about funding, for your real estate investment, call Level 4 Funding to learn about the options of hard money lending.

What Are Hard Money Loans?

Most consumers are aware of the process to secure a traditional loan. But only a very few know about Hard money loans in Arizona and how to use them.

Traditional lenders are the banks and mortgage companies that you see online and with brick and mortar locations all over the country. These lenders offer relatively competitive rates and terms as they are federally regulated. But they also require borrowers to fit into a fairly specific mold to qualify for a loan. So the question is, what are your options when you don’t fit into that perfect mold which includes a steady paycheck from an employer, a good credit score and a low debt to income ratio? The answer for many borrowers is to try out using hard money loans.

What most people don’t understand in the beginning is that Hard money loans in Arizona are just loans from private lenders rather than a bank or other lending institution. These loans are legal, so don’t think that you can skip out on the payments because the lender can sue you or take your collateral. And the lenders themselves are not street thugs, drug dealers or other unsavory characters who are looking for a way to appear legitimate while laundering illegal profits. Arizona Hard Money Lenders are just average people who are looking to use their money to earn interest and make a living.

The reason that Arzona Hard Money Lenders are appealing to many borrowers is that these lenders are not scouring the borrower's application and credit history to decide if they will be a suitable risk for the loan they are requesting. These loans are asset-based rather than credit based. That means that the borrower must offer collateral to secure the loan. In most cases, the collateral is the property that you are using the loan to purchase. But the only requirement in most cases is that the collateral is worth more than the balance of the loan.

Instant Equity

As you might have guessed, being asset-based, Hard money loans in Arizona are never going to be for the full purchase price of the property. That means that as a buyer, you must be able to make a down payment on the property which will provide you with instant equity and the lender with some security. Your equity is the lender's security because if at any point during the term of the loan, you fail to make the payments, the lender has the right to take the property from you. Even if you only owe a few more payments which total a few thousand dollars on a few hundred thousand dollar house, the lender can take the property and keep the total amount that he or she can sell it for.

Why Use Hard Money?

It might sound like hard money is only a good deal for the lender, but that is not the case. A hard money loan is a great way for someone who has bad credit or no credit to purchase a property without saving the total purchase price. In addition, hard money normally funds very quickly so this loan is great for someone who is looking to make a purchase quickly and can’t wait for a traditional lender to approve the loan. But as with any loan, the most important part is to read the document and understand what is expected of you prior to signing.