When you’re looking at investment property, time is money–you don’t want to lose out on a great deal because you can’t get the financing you need quickly enough to close. If you’re in that position, a hard money loan might be the way to secure that property–especially if you’re looking to fix and flip.
What Exactly Is Hard Money?
In its simplest terms, it’s a loan secured by the real estate collateral itself, not the borrower’s ability to repay the loan. A soft money loan is a traditional bank or mortgage company loan that relies more on credit history, assets and financial income to determine the borrower’s ability to qualify and to repay the loan. Since the collateral is the basis for the hard money loan, approvals happen much faster than what is possible with traditional lending banks or mortgage companies.
How Does A Hard Money Loan Work?
Hard money lenders tend to be private investors who have their own sources to lend money. They look for short amortizations–five years is the outside; a six to 18-month term is typical. Each piece of collateral is judged solely on the merits of the property, and since there is no formal underwriting process, an investor can get their money much faster and with fewer hoops.
The downside is that with limited amortization, you need to be confident you can fix and flip the property quickly within the loan term, or can source traditional financing before the loan is due to repay. With that caveat, hard money may be a better option for an experienced investor.
The upside? A hard money loan can be approved and funded within days–not the weeks and weeks that banks require. In competitive real estate markets, your ability to close as soon as you can is a huge advantage.
Applying For a Hard Money Loan
As with any lending transaction, you will have an application to complete which collects your personal information or any other majority partners in the deal. You’ll be asked to provide purchase price and since the collateral is the primary focus for hard money lenders, you’ll need to provide detailed information on the property–appraised value, tax value, costs, after repair value (ARV) and time to rehab.
Credit
A credit and background check are required. Once you’ve developed a relationship with Center Street Lending, your credit is updated every six months so you’re always that much closer to funding a loan.
Experience
What is your experience in fixing and flipping? You will need to document your past projects to verify you have the ability to rehab the property to meet your projections.
Collateral
Center Street Lending has a maximum LTARV (loan value after repairs) of 75%. You will have to put 20-30% cash down on each loan, as well as a personal guarantee. You’ll need to provide the information on the property as well as your projected fixes, costs, profit, and turnaround time. A third party appraisal is required to determine the current as is value plus the after repaid value (ARV) of the property. Center Street Lending specializes in properties that are purchased for fix and flips, rental investments, bridge loans, group up and multi-family residential homes.
Is Hard Money Right For You?
If you have the experience in fixing and flipping houses–or multi-family units–that you need for a hard money loan, how can you tell if it’s right for you?
Do you have alternate access to quick cash?
- Do you have the cash ready for the down payment?
- Can you guarantee the loan with other real property as collateral?
- Can you meet the deadline for flipping or refinancing the property?
If you have the cash and the collateral, you should consider hard money financing for your next project. At Center Street Lending we specialize in hard money loans. We offer competitively priced loans with no hidden fees, transparent communication and quick results. You may have many questions regarding this, so the best thing to do is to contact us today for a free no cost quote. Our goal is to work with you as a team to ensure your success!