What are hard money loans used for?<\/h2>\n
Hard money loans can be a versatile financing solution for various real estate investment scenarios. Here are some common situations where these loans prove beneficial:<\/p>\n
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- Flipping a house: <\/strong>For investors involved in flipping homes<\/a>, hard money loans provide quick access to funds needed to purchase and renovate properties. This fast funding allows flippers to take advantage of time-sensitive deals and complete their projects efficiently.<\/li>\n
- Buying an investment rental property:<\/strong> Investors looking to acquire rental properties<\/a> can use hard money loans to secure financing quickly. This allows them to purchase and renovate properties, getting them rental-ready and generating income faster than traditional financing options would allow.<\/li>\n
- Purchasing commercial real estate: <\/strong>Hard money loans can be beneficial when purchasing commercial properties due to their flexibility and speed. Investors can secure financing quickly, allowing them to capitalize on lucrative commercial real estate opportunities and generate revenue sooner.<\/li>\n
- Borrowers who can\u2019t qualify for traditional loans: <\/strong>Individuals who cannot meet traditional loan criteria due to poor credit or lack of income documentation can still obtain financing through hard money loans. These loans focus on the home equity<\/a> and value of the property, making them accessible to a wider range of borrowers.<\/li>\n
- Homeowners facing foreclosure: <\/strong>Hard money loans can be a lifeline for homeowners facing foreclosure<\/a>. By providing quick financing, these loans allow homeowners to pay off their existing mortgage, avoid foreclosure, and potentially sell their property under less distressing conditions.<\/li>\n<\/ol>\n
<\/div>\nHow much do hard money loans cost?<\/h2>\n
Hard money loans generally cost more than traditional loans due to the higher risk for lenders and the convenience of quick, flexible funding. Typical costs include:<\/p>\n<\/div><\/div><\/div><\/section>
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- Interest rates: <\/strong>8% to 15%<\/a> or higher, based on risk assessment.<\/li>\n
- Origination fees:<\/strong> 1% to 5%<\/a> of the loan amount.<\/li>\n
- Closing costs:<\/strong> Legal, appraisal, and administrative fees<\/a>.<\/li>\n
- Points:<\/strong> A percentage of the loan amount<\/a> charged upfront.<\/li>\n<\/ul>\n\t\t<\/div>\r\n\t\t<\/div><\/div><\/div><\/section>
Online calculators<\/a> can also help estimate these costs.<\/p>\n
<\/div>\nAlternatives to working with hard money lenders<\/h2>\n
If a hard money loan isn’t the right fit for your needs, consider these alternative financing options:<\/p>\n
Take out a second mortgage:<\/strong> A home equity loan<\/a> allows you to borrow against the equity in your home, providing a lump sum that can be used for various purposes, including real estate investments.<\/p>\n
Cash-out refinance:<\/strong> With a cash-out refinance<\/a>, you can replace your existing mortgage with a new one for a higher amount, taking the difference in cash to fund other projects or investments.<\/p>\n
Borrow from family or friends: <\/strong>If you have supportive family or friends, borrowing money from them can be a flexible and less formal financing option, though it\u2019s important to maintain clear terms to avoid misunderstandings.<\/p>\n
Use a government-backed loan program: <\/strong>Programs like FHA loans<\/a> offer more accessible financing options for those who qualify, providing lower down payments and flexible credit requirements.<\/p>\n
Peer-to-peer loan:<\/strong> Peer-to-peer lending platforms connect borrowers with individual investors willing to fund their loans, often offering competitive rates and terms based on the borrower’s profile.<\/p>\n
Specialized loan programs:<\/strong> There are various specialized loan programs available for specific types of real estate investments, such as loans for first-time homebuyers, veterans, or rural properties, each with unique benefits and requirements.<\/p>\n
Request a seller financing option: <\/strong>In some cases, the seller may be willing to finance the sale themselves, allowing you to make payments directly to them instead of through a traditional mortgage lender, which can be advantageous in competitive markets.<\/p>\n
<\/div>\nHow to buy before you sell<\/h2>\n
HomeLight\u2019s Buy Before You Sell<\/a> program is designed to help homeowners seamlessly transition from one home to the next. This program allows you to buy a new home before selling your current one<\/a>, eliminating the stress and uncertainty of coordinating two major transactions simultaneously.<\/p>\n
With Buy Before You Sell, HomeLight provides the funds needed to purchase your new home upfront. Once you’ve moved in, HomeLight helps you sell your old home for top dollar, ensuring you get the best possible price.<\/p>\n
This program is particularly beneficial for those who want to avoid temporary housing or storage costs and those who don\u2019t want to rush the selling process of their current home.<\/p>\n
Here\u2019s how HomeLight Buy Before You Sell<\/a> works:<\/p>\n
- Origination fees:<\/strong> 1% to 5%<\/a> of the loan amount.<\/li>\n
- Buying an investment rental property:<\/strong> Investors looking to acquire rental properties<\/a> can use hard money loans to secure financing quickly. This allows them to purchase and renovate properties, getting them rental-ready and generating income faster than traditional financing options would allow.<\/li>\n