As the health of the economy is improving, non-traditional loans are quickly becoming more common. A hard money loan is a common financial product that real estate investors use for leverage at the closing table. Keep reading to learn essential negotiating tips when applying for hard money loans.
What Are Hard Money Loans?
Hard money loans are short-term, non-traditional loans secured by real estate. Rather than a mortgage provided by a conventional lender, such as a credit union or bank, a hard money loan is funded by a private investor or fund of investors. People prefer this type of loan over a traditional loan, because fewer documents are required.
You can be approved in as few as 24 hours, and you can receive your money in as few as seven days. Such a short turnaround time in receiving your cash provides you with a great deal of negotiating power at the closing table.
Essential Negotiating Tips
Qualifying for hard money loans is easier than qualifying for a traditional mortgage. However, whenever you take out a loan, it is important to know how to negotiate successfully. First, you want to understand the terms of the loan you are applying for and ensure the lender will be a good fit for you. Then, you want to be prepared when you walk into your first meeting to demonstrate how you repay the loan.
Next, you want to have assets in place that you can liquidate if you struggle to repay the loan. You must also be prepared to communicate if you are having trouble meeting any deadlines set by your lender.
Understand the Loan
A hard money loan requires a tangible asset to act as collateral. This is typically real estate. Rather than looking at a potential borrower’s credit history, the lender looks at the viability of getting their loan back should the borrower default. This is important because it drastically reduces how long it will take for your loan to be approved. It also results in fewer fees you will have to pay. Rather than paying a lender fee and a broker fee, you will only pay a lender fee.
Since there are fewer documents required to qualify for a hard money loan, the terms are much stricter. While banks dive deeply into a borrower’s prior tax returns, bank and investment balances, and each source of income and expenses, hard money lenders look only at the property. Therefore, it is crucial that your property can produce the income to repay the loan.
Know Where the Funds Come From
Remember, a hard money loan is funded by the capital of a private lender or group of private lenders. This means when you meet with the lender, he is the decision-maker. He can approve or reject your application without consulting a third party, like a loan committee. One of the most significant benefits of a hard money loan being provided by a private lender is they are not governed by banking laws. This provides them with the freedom to underwrite loans that traditional lenders would be forced to reject.
Research Your Lender
When choosing a lender, look through their website to find testimonials from other buyers and understand the terms that they offer. Reputable lenders will also be happy to provide you with references, so you can get a feel for how it is working with this lender. You may also want to request a loan summary via email or phone before you set up a meeting.
Demonstrate the Value of Your Project
Before you meet with a lender, prepare to show the value and viability of your project. Remember, a hard money lender is putting up personal capital. Use actual numbers to demonstrate your ability to repay the loan, particularly the resale value of the property.
If you are renovating a property that you are already renting, show financial statements. Finally, while you do not need a credit report to close the deal, use your solid credit history to get a lower interest rate.
Have an Exit Strategy
While it is easier to qualify for a hard money loan than a traditional loan, interest rates are usually higher. Many lenders require you to have a plan to repay the loan before they approve you. However, if you are struggling to meet any deadline your lender sets, be prepared to request an extension. Furthermore, you must be prepared to sell your investment property or other assets if you cannot afford to repay your loan.
Contact Us Today
At AS-IS loans, we will work with you no matter what your situation. We offer non-traditional loans to people with all credit histories and employment situations. Call us today at (800)611-2747 to speak to a loan advisor and see what we can do for you.