What To Know About Hard Money Lenders

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Do you need a short-term loan in order to flip a house for profit? If so, you will need to seek out a hard money loan rather than a traditional mortgage. Hard money loans allow you to quickly get the money you need within a matter of days rather than months, which is what makes this type of financing a very popular option with home flippers. Here are a few things you should know about hard money loans before getting one.

Hard Money Loans Don't Typically Provide All The Funding

One thing to be aware of with hard money loans is that you must show that you are invested in the property as well. While there is no set percentage of the home's purchase price that you'll get for a hard money loan, it is very similar to getting a traditional mortgage where you need to put 10% or 20% down. By having some of your own money on the line, a hard money lender will be more willing to provide you with the rest of the cash to flip the home.

Hard Money Loans Have High Interest Rates

While you may be used to the very low interest rates of traditional mortgages, you need to be aware that hard money loans do have a higher interest rate. Thankfully, the purpose of using this loan is to flip a property quickly to minimize the amount of interest that you have to pay. For example, a new investor may pay around 10% in interest for their hard money loan. If you are borrowing $100,000 to flip a home, you'll owe $10,000 after holding the property for a single year at 10% interest. If you can complete renovations and sell the home after 6 months, you'll cut the interest that you pay in half and only pay $5,000 for the loan. 

Hard Money Loans Have Origination Fees

Hard money lenders will charge you origination fees in order to create the loan for you, which is like a commission that they make for completing the loan. This origination fee varies based on your history with the lender, but it can be around 1% to 5% of the loan's value. It's not much, but it is to guarantee that the lender makes a profit off the loan.

Have questions about getting a hard money loan? Reach out to a lender in your area that can explain more about the process. 

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