Exploring Interest-Only Hard Money Loans
There are all sorts of modern ways to obtain a loan, and companies of all kinds are trying to cash in on the fact that it isn’t exactly easy to get a loan from traditional financial institutions such as banks and credit unions. Many people are actually turning to interest only hard money loans for their own plans, and this loan is quite advantageous to those who are interested in flipping homes and purchasing real estate properties.
Different Kind Of Loan
Why is that? Well, you don’t need incredible credit to obtain a hard money loan. Why is this? It’s this simple: a hard money loan is possible because it uses capital from private investors to fund the loans. This is great for two reasons – you can obtain a loan with a low credit score, and also, you can obtain a hard money loan even if you’ve had a recent bankruptcy or foreclosure.
Interest Only Hard Money loans often charge slightly more interest than traditional loans as a result. After all, if you don’t have the credit to obtain a loan elsewhere, you might be fine with paying a couple more percentage points. Why is it called an “interest-only hard money loan”? You will be paying back interest on your loan each month.
However, if you are using the money in order to fix and flip houses – you will need to disclose that the loan is for this purpose. You will often be charged a slightly higher rate for “fixing and flipping” than a loan just for purchasing a property. The loan might also be affected by your credit history, as well.
One great thing about a hard money loan is that you can get the money quickly. This is often essential for those who are attempting to close on a property as quickly as possible, so that they can renovate it and flip it for a profit. This is one of the reasons why it’s popular among real estate investors.
Another Path
There are plenty of real estate investors that might have incredible credit and would have no problem securing a loan from various places. They might have friends and/or family that would be more than happy to help them with a favorable loan, but the truth is that investors are only as creative as the ways that they are funded.
At the very least, interest only hard money loans are another way to raise money and close on deals that can lead to more profit and a higher quality of life. This is also advantageous for experienced real estate investors who might be able to prove that they are able to consistently pay back loans of all kinds.
Regardless, it should be noted that hard loans typically start with interest rates of around 7%, and don’t last longer than a couple months. While there are exceptions, this is important to consider. If you qualify, you may be able to find hard money loans that last for years.
Regional Term
You may be surprised to find that the concept of a “hard money loan” is not a concept that is a global one. If you are interested in purchasing real estate in Asia and/or Europe, and use the term “hard money loan”; you shouldn’t be surprised to find that they might not know what you are talking about.
The term is mostly used in two countries, The United States and Canada. It’s also important to note that hard money loans are often unregulated by both state and federal laws. However, there are some state restrictions on interest rates that you might have to think about.
Regardless, these loans are the most common in both the U.S. and Canada. One of the reasons why the industry has emerged is because of the many changes that took place in the 1950s regarding the credit industry.
Find The Right LTV
When it comes to finding a loan, you also want to think about the LTV (Loan To Value). For those who might not be aware, this refers to the loan-to-value ratio. If you are a real estate investor, there’s a good chance that you will want to leverage your assets in order to obtain financing.
A high LTV is good news for you, because it means that you can obtain more financing depending on what you own. There are plenty of companies that will offer you an LTV of 40% or 50%, but you can find companies who provide higher rates. Of course, this depends completely with what exactly you plan on doing with the financing. A hard money loan is often determined using an independent appraiser or a BPO – a broker price opinion.
It should also be noted that there are different average LTVs in different countries. This makes sense, given the fact that every country has an economy and housing market of their own.
Interest Only Hard Money Loans
Can you get a better deal than interest only? Probably not, and that is why interest only hard money loans are great for flipping houses. The limited amount of the monthly payments while you are doing the rehab on your property will keep ongoing costs down allowing you to keep money in your pocket if an unexpected repair comes up. With this type of loan you can delay paying any principal until you sell the house.
If you are searching for a hard money loan, it’s important to remember that you want to find one with the best terms. You might end up saving thousands of dollars simply by taking the time to research different companies for several hours and finding out the interest rate or payoff plan that works best for you and your needs. Either way, a hard money loan is a great way to expand if you don’t have good credit, but do have a lot of assets, for example.
One of the reasons that many people turn to hard money loans is because financial institutions have prevented many hardworking individuals and investors from obtaining loans. This is partially due to the Dodd-Frank Act, which sets forth strict guidelines regarding mortgage lending. Hard money loans don’t have to adhere to these regulations.
After all, the United States housing crisis was a large contributing factor to the global recession of 2007-2008, which affects the entire global economy to this day. After 2009, interest only hard money loans have become more popular among real estate investors, and it might remain that way for a while.
