Learn 9 Ways to Start Flipping Houses With No Money
If an investor can acquire finance in as little time as feasible, the slightly higher interest rate is well worth the cost of entry. Unsurprisingly, most investors will discover that the speed with which they may make an offer is more crucial than the interest rate with which it comes.
Traditional banks, on the other hand, may take up to 45 days to close on a loan, which is just long enough to let a deal slip through your fingers.
Most private money lenders will want insurance in the form of a promissory note and a mortgage or trust deed on the subject property. Some private lenders may even require clients to put up their own assets as collateral for the loan, although everything is negotiable.
2. Hard Money Lenders
Hard money lenders, in their most basic form, are lending organizations that specialize in short-term real estate-backed loans. Unlike their private money equivalents, they are associated with a lending company.
To avoid misunderstanding with established lending institutions, hard money lenders often provide shorter loan durations. Whereas transactional lenders will make loans for up to 15 or 30 years, hard money lenders will only make loans for six to two years.
Hard money lenders will operate similarly to private money lenders, with the exception of their affiliation with a real corporation. Their lending criteria are not only substantially looser than those of traditional institutions, but their interest rates are also slightly higher.
Hard money lenders often charge 11 to 15 percent plus five percentage points (additional upfront percentage fees based on the loan amount). It is important to note, however, that there are no common hard money lender standards; each will have a unique set of criteria.
“You can fund all home repairs with hard money lenders,” say specialists at New England Home Buyers. Hard money loans, unlike regular bank loans, are not based on your creditworthiness.
Hard money loans, on the other hand, usually have higher fees and interest rates. Remember that interest rates can range from 8% to 15%, and points can range from one to five”.
It is also vital to understand that most hard money lenders would only lend a percentage of the purchase price – often about 70%. Most investors will have to turn elsewhere if they don’t want to spend money out of their own pockets, possibly to a private lender.
