Hard money loans are quite different from any other kind of loan out there. They’re often called private loans, because they aren’t obtained through the typical banking system. These are loans that are given for the purposes of real estate investment that are privately funded. This makes hard money loans much simpler to get than the typical bank loan.
What’s great about hard money loans is they don’t require you to have all your eggs in the basket before you can apply for one. The typical home loan has a lot of red tape, regulations, and qualifications. Private loans, on the other hand, are backed by collateral in the potential value of a flipped home, not your own personal financial history.
If you’re an investor looking to purchase a home for the purposes of renovating, updating, and then selling, you really don’t need a long-term loan. Hard money loans are typically used as financing for construction projects. You’ll need the money as soon as possible to start the renovation work.
So, what do you need to get a hard money loan? Here is some of the top advice on the Internet for obtaining a private loan to help you with your real estate investment:
1) Do Your Homework. They often say that the devil is in the details, and the same is true for hard money loans. If you’ve been rejected by the bank, resist the temptation to sign with the first lender you find. How you get treated by these investors can be the difference between night and day. Some actually do care about your project, and others are nothing more than loan sharks, ready to eat you like prey.
To combat this, do your homework. Do they have a verifiable website that looks good? Check to see if they have any outstanding lawsuits, the types of projects they’ve invested in, and if possible, spend time with a member of their team. Take them to the site and show them exactly what you want to do to get a good sense of their reaction.
The key is also to find the investor who fits what you’re doing. If the guy you choose to apply with focuses mostly on medical facilities, and you’re trying to flip an old house, you might not necessarily be good partners. So, choosing someone who shares the same ideas you do is a great first step getting approved.
2) Know the value of the property you want to purchase. Just like with any investment, the investor wants to know what they’re getting out of taking the risk to go your way. In order to do that, you have to prove the value of what you’re doing. The financing happens not because of the amount of money you make. Your credit score doesn’t really come into play.
When you apply for a loan, you should have all the numbers worked out ahead of time. You must prove to the investor that investing in you will be worth their time and their money.