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Sunday, January 20, 2019

Three Benefits of Hard Money Loans

Arizona Hard Money Loans are a great financing tool when used correctly. Understanding the loans benefits can help you to begin a very successful real estate investment career.

Arizona Hard Money Loans offer many benefits to borrowers and real estate investors. That is why seasoned professionals use these loans on a regular basis to purchase commercial properties, rental properties and fix and flips. But the novice investor needs to be educated to avoid misuse of these types of loans which can result in a financial disaster. Understanding the benefits will also help new users understand the best ways to uses hard money loans.

The speed of hard money is one of its greatest benefits. Not only is the application process much less complex than that of a traditional loan, but the approval and funding stages are also more expedient. This allows real estate investors to make an offer on a great property and know that they can close quickly and secure the property before another buyer comes along and starts a bidding war. This fast turnaround is certainly good but it comes at a higher interest rate than traditional loans. So smart borrowers know that hard money is best suited for fast projects. The application and approval are fast, the project is short-term and the higher interest rate is paid for only a short time so the loan is still rather affordable.

Part of the reason for the faster processing of hard money is that the qualifications are different than a traditional loan. Hard money is also called asset-based because the loan is secured with collateral rather than the borrower's creditworthiness. This makes it much easier for the lender to evaluate the property and determine if he or she will fund the loan. This qualification system makes it much easier for a person with low credit to secure a loan as well.

Flexibility Is Important

Hard money is offered by private lenders which makes these loans great for anyone who is looking to finance a rather unusual project. Most banks are not willing to finance fix and flip projects due to the risk as well as the short term of the loan. Private lenders can also be more open to funding a loan on a property that is in very poor condition as they can evaluate the potential of the property when the renovations are completed. A traditional lender is not willing to take that chance on a loan.

Understand Hard Money’s Purpose

Understanding that Arizona Hard Money Loans are designed for short-term projects and projects that are not going to fit into traditional lenders standards is critical to using the loans correctly. The higher cost is not really as big a deterrent as some borrowers might believe. Paying a little bit more is always better than not getting funded at all and missing out on an opportunity. Borrowers simply need to read the loan agreement completely and understand all of the terms and conditions of the agreement before signing it.

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.

Saturday, January 19, 2019

The Cost Of Hard Money Loans

Arizona Hard Money Loans do cost more than traditional loans. And it is important for borrowers to understand all of the fees and costs of the loans before choosing hard money.

Whenever you get a loan from a professional lender, which could a lending institution or a private lender, the lender is conducting a business in order to make money. So you know that you are going to pay something for the use of the money that you are borrowing. But what most borrowers do not take into consideration is that added benefits or services are going to cost more. In the case of hard money loans, the added cost also brings with it added value.

It is important that borrowers speak to each lender to determine the fees that he or she charges on hard money loans. These fees can include the basics such as interest and points which you will pay on any loan, but there can be a long list of other fees that lenders will apply. Some of the more common fees include the underwriting fee, application fee, processing fee, referral fee and more. If you feel that there are too many fees to be legitimate, then seek out another lender as each hard money lender is pretty much free to access fees as he or she chooses. But also keep in mind that a few fees such as a small application fee and a processing fee are used to cover the administrative chores involved in the loan process.

There can also be some penalty fees involved in your loan that you will want to understand before agreeing to the loan and signing the loan documents. A late payment fee is fairly self-explanatory. Some lenders will offer a slight grace period but others will charge a hefty fee if the payment is even a single day late. If you are getting to the end of your current loan and cannot make the final large payment, some lenders will extend the loan or do a renewal but there is a cost for that as well. And finally, the lender is counting on a certain amount of profit from the loan in the form of interest. If you pay the loan off early, then the lender loses some of that profit. Many lenders will create an early pay-off penalty that is just about equal to the interest that would be lost due to the early payoff.

The Benefits

Hard money does come at a cost, but there are many benefits including fewer criteria to qualify for the loan and lower credit score requirements. In addition, the loan terms are far more flexible than a traditional loan and the funding is much faster as well. Clearly, the cost offers some important benefits to be considered.

Know The Terms

Each borrower needs to decide if Arizona Hard Money Loans and the cost associated with these loans is worth it to make a deal. Some real estate deals are so time sensitive that hard money is the only option to close on a great property before a bidding war begins. Evaluate the costs and decide if hard money is going to land you a great profit or if the cost is too high for you.

The Best Uses of Hard Money Loans

Not all loans are meant to be used for every financial need. Understanding how to best use hard money loans can help borrowers to take full advantage of these loans.

Because hard money loans offer some very specific benefits and drawbacks, there are certain types of purchases which are best suited to hard money loans. Having a clear understanding of how hard money works and its benefits can help first-time borrowers use them to their greatest benefit to increase profits and to grow their personal wealth.

These private loans are generally made for only a short time which can range from just a few months to a few years. Being short-term these loans are obviously best when used for short-term projects rather than being used in the place of a traditional mortgage which would span several decades. Some examples of short-term deals include fix and flips, land loans, construction loans and to bridge a time when a person is experiencing credit challenges and could be facing a foreclosure. In addition, hard money loans are the perfect option for a buyer who needs to have a loan funded very quickly. Then once the purchase is completed, the borrower can seek a traditional loan to pay off the hard money lender.

There are several reasons that hard money is best only used for a short-term project. The first and most important reason is that the interest rate on these private loans often ranges from 10% to 15%. To put that amount into perspective, current traditional mortgage rates are ranging from about 4% to 6%. In addition to interest, hard money lenders will also charge borrowers points and other fees. Points equate to 1% of the loan amount per point. So paying 5 points on a $100,000 loan would be a cost of $5,000. Additional fees could include applications fees, processing fees, appraisal fees, and even funding fees in some cases.

Fast Is Good

There is no question that getting a loan application approved quickly is a huge benefit for most borrowers. This can ensure that you are able to purchase a great investment property or even your dream house. But you need to understand that you are going to pay a higher price for this fast loan service. So budget both your time and money carefully. Keeping a renovation project on time can be difficult but if it allows you to use hard money and remain in the time frame outlined in your loan terms, it is worth the extra effort and late nights to get the work completed.

Make a Good Choice

Understanding the terms of your loan and the total cost of the loan can help you to use hard money as efficiently as possible. Often times these short-term loans are only used as a bridge to allow for time to secure a traditional loan at a substantially lower interest rate and for a more appropriate length of time. But in other cases, these loans are perfect for a renovation or fix and flip project that is only expected to take a few months.

The Benefits of Hard Money Loans

Not every loan is designed to meet every need. Understanding the benefits of Arizona Hard Money Loans can help you to use these loans to their greatest potential.

Arizona Hard Money Loans are designed to be short-term loans which is a critical factor that borrowers must understand. Using hard money as a solution to a long-term financial need is never a very good idea as the loan interest rate is very high. But aside from the higher cost of hard money loans, there are many advantages that can be well worth the higher cost of the loan.

From the start, Arizona Hard Money Loans are far less difficult to secure. The application process for these asset-based loans is far less complicated than the process of applying for a traditional loan. Banks and mortgage companies require many documents to prove the borrower’s financial status as well as his or her employment history and other personal credit information. But hard money lenders are more interested in the value of the property being used as collateral for the loan than they are the borrower's credit score or credit history. In most cases, the lender requests a few months bank statements, proof of employment and income and information about the property being purchased.

In addition to the reduction in paperwork required for hard money, there is also a far less stringent credit score requirement. Most traditional lenders would like to see a credit score of 650 or more to approve a loan application. But hard money lenders are much more flexible and will consider a loan request from a borrower with a credit score as low as 550.

Fast Funding is Big

One of the biggest benefits for hard money is the fact that most loans will process much more quickly than traditional loans. A bank or mortgage company will require several weeks or even months to process an approval and then even longer to fund the loan. But with hard money, the application process can be completed in just days and the funding can also be completed equally as quickly. So investors who need to make a real estate purchase quickly can have their loan funded in just a week o so rather than in a month or two as with a traditional lender.

Use The Loan Correctly

Hard money is a loan that is provided by a private lender and can offer a huge benefit to the right borrowers. The fast turnaround time of both the loan application approval and the funding is always a benefit to borrowers. In addition, the fact that the loan is based on the value of the collateral property and not the borrower’s creditworthiness is also helpful. When used as a short-term loan to fund a real estate purchase for a fix and flip or as a bridge to make an investment purchase prior to securing traditional funding, hard money offers great benefits for the cost of the loan. As with any loan, borrowers should read all of the loan documents prior to signing them to be certain that he or she understands the terms and requirements of the loan.

Qualifications for an Arizona Hard Money Loans

Many borrowers are very surprised when they learn that the requirements to qualify for Arizona Hard Money Loans are much different than those of traditional loans. Understanding these differences can be very helpful to certain borrowers.

Because Arizona Hard Money Loans are asset-based, meaning the approval is based more on the value of the property being purchases than the borrower’s creditworthiness, credit scores are not a much of a concern as is the case with traditional loans. Rather than the borrower’s credit score is the most important criteria, the actual value of the property is more important. So in most cases, a credit score of about 550 is enough to secure most Arizona hard money loans.

The lender is going to require that the borrower show proof of an income that will allow him or her to make the loan payments for the hard money request. In most cases, this is done by submitting paycheck documentation or other income streams. The lender might also request a few months of bank statements to show that the income has been consistent and to track cash flow for other bills.

If the loan is being used to purchase a fix and flip property, the lender is likely to request information about the borrower’s level of experience in the fix and flip industry or the real estate business. This is to show the lender that the borrower has the knowledge, skill, and understanding needed to complete the renovation project as well as the ability to keep the project on the needed schedule for completion and resale. Some lenders will also as for a formally written exit strategy. This is often a detailed account of a contingency plan in the event that the project is not completed on time or if the property does not sell as quickly as expected.

The Property

Because the property being purchased is going to be the collateral for the loan, the lender is going to be very interested in the current condition of the property as well as the potential for the increase in property value. In the case of fix and flips, the demo involved in the early phase of the project can actually drop the property value for a time. The lender always wants to be certain that the condition of the property is not so poor that the demo could make the property almost worthless. Having a property with good potential for value increase is the best way to secure a hard money loan.

Know the Criteria

Private lenders are free to set any criteria that they choose to for borrowers. It is always best to ask each potential lender what his or her criteria are for hard money loans. This can help you to save time and money when you are applying for a loan. This information, along with the interest rate and a complete fee schedule from each lender will allow you to evaluate all of your options and select the lender and the loan that will best suit your needs.

Friday, January 18, 2019

Arizona Hard Money Loans in a Nutshell

Not every consumer understands Arizona Hard Money Loans or how they can benefit from them. But a small amount of information can explain the benefits and how to use them.

When you are denied for a traditional loan from a bank or other lender, it can be very frustrating and it can feel like your dream of owning a property has come to an end. But there is an alternative type of loan that is very helpful for many borrowers. Arizona Hard Money Loans are short-term loans which are funded by private lenders. Normally the loan term is around a year but the loans can be as short as a few months or extend up to around the five-year point. The loan terms will outline the payment schedule but in most cases, a monthly payment will be due.

The amount of the loan is based primarily on the value of the property that is being purchased. This is called asset-based lending and means that the property, the asset, is being used as collateral for the loan. The reason that this is beneficial to the borrower is that his or her credit score is not the primary concern when the lender is evaluating the loan application. So borrowers who have a credit score too low to qualify for a traditional loan can still qualify for hard money.

As an asset-based loan, the lender is far less interested in the borrower’s personal credit, payment history, and overall creditworthiness. This means that there are far fewer documents required when submitting a loan application for hard money loans. In most cases, the lender will request a few months of bank statements as well as proof of income to verify that the borrower has the income and capability to make the loan payments.

Less Time Involved

With fewer documents required for the loan application, borrowers will be able to quickly prepare their documents and in return, the lender will be able to very quickly review the documents. In some cases, a traditional loan application can linger for months before being approved or denied while hard money can be approved in just a few days in some cases and almost always in less than two weeks. So for borrowers who need money quickly, Arizona Hard Money Loans are a great option.

Legal and Legit

Even though hard money is considered a non-traditional type of loan, it does not mean that the loan is not legal and legitimate. It also is no indication that the loan can be allowed to go unpaid as the loan documents are as legal and binding as any loan from a bank or a mortgage company. Hard money is just a different type of loan from a different type of lender which is used to meet a unique need for some borrowers. Understanding the terms of your loan agreement is always important and hard money is no exception. Be certain to read the entire loan document and seek legal advice if there is any aspect of the agreement that you do not understand before signing it.