How Does a Hard Money Loan Work?

Lending can be a tricky field to navigate for a borrower, and hard money loans are no different. These financial instruments are great for certain borrowers. They give you fast access to capital, typically in order to buy property, but they rely on assets used as collateral rather than on the creditworthiness of the borrower. So how do hard money loans actually work? Read on to find out some facts about this system of borrowing.

Borrow with a hard money loan for investments.

Hard money loans are best used for buying investment properties. Home flippers take great advantage of the opportunity baked into these extensions of credit by quickly renovating and selling the home for profits. Seeking out hard money lenders Oregon can give you more information on the lenders available in your local area, but the basics are pretty simple.

A hard money loan is one backed by collateral, and is made by a private equity company rather than a bank. This means the money can be deposited into your account without delay and is ready to use for your purchase without origination fees or the mountain of paperwork that typically comes along with any new bank loan for a real estate agreement. The tradeoff is a higher interest rate. However, the majority of hard money loans are used to purchase a house for flipping, which means that the interest rate has far less time to add debt to the principal. Borrowers who are flipping a house work to offload properties as fast as they can in order to keep costs down — one of them being the loan used to buy the home in the first place.

Speeding up the flipping process.

If you are considering a hard money loan you are probably looking to get into the real estate investment market. Investors of this nature have to be quick on their feet and have natural problem solving abilities. You need to be ready to invest the time, money, and energy required to finalize a deal and then quickly turn a property around for sale in order to cash in on the investment. This is the only way to see the maximum return possible.

Borrowers who are taking out a hard money loan to flip a house need to have a number of outlets for assistance on speed dial as well. Searching for a ‘roofer near me’ is the best way to vet roofing contractors to do the roofing repair work that will eventually be required on a property you buy. You will also want to get to know plumbers and general contractors in your local area, too. Having trusted hands ready to take on a job can speed up the overall work process and get the home ready for market in days instead of weeks. Remember, every second counts when flipping a house because every day you own the property is another day of homeowners fees and tax, and another day of accrued interest on the loan used to acquire the house.

Investment properties can build major wealth in a portfolio, but they can also suck the cash right out of your sails. Holding on to a home for too long or buying one that requires extensive work can create a serious setback. So becoming friends with your trusted contractors might give you the opportunity to evaluate a property before purchase with the addition of a professional eye. This also goes for your hard money lender. Getting to know the individuals behind the desk at your local lender’s office can have lasting impacts on your ability to secure loans with favorable terms. You are unlikely to see significant preferential treatment, but routine business is great for building personal and professional relationships between borrowers, lenders and local contractors that streamline the process loan disbursal and fixing up the real estate property for your next project. Anything you can do to grease the tracks is a benefit to your bottom line.

Hard money loans are a great solution for the business of flipping houses. Get started researching your options now.