There are affordable land loan options in Arizona. You’ve finally found that piece of land you’ve been searching for. It can be a perfect getaway spot or you have some commercial plans for it. Either way, it’s poised to be […]Read More
Welcome to the home of Investor Property Finance private hard money lenders Phoenix, AZ metro area. As a property investor, one of the crucial roles you will have to play is to structure your deals using various financing tools. The type of loan that you choose is a key factor in ascertaining the cash flow that the investment will generate. There are a plethora of loans available for property investors. The type used by investors involved in commercial or residential property deals is hard money loan. These loans are designed to meet the financial needs of property investors who are unable to use conventional financial products. This article discuses everything you needed to know about these loans but did not ask.
There are a number of different types of loans that are considered to be hard money loans, including mortgage financing, bridge and residential equity. For mortgage-financing, you take out a loan that is a greater value than your original loan on the residential property. Bridge loans are used when a seller is buying a new home before selling an existing one.
For a residential equity loan, your house acts as collateral to guarantee you will pay it back.
Successful property investors have and always will rely on these loans to get property deals done. Due to their small size as well as personal involvement, hard money lenders usually close faster and with much less paperwork compared to conventional lenders. Properties funded by these funds are stronger and have higher chances of acceptance than an offer with down payment with traditional financing. When dealing with conventional lenders, your income and credit are two of the most crucial criteria. Hard money lenders are concerned with the value of the collateral and less concerned with your credit worthiness.
If you have bought a new home and haven’t sold the existing one, you may qualify for a hard-money bridge loan. These are also ideal if the property being bought doesn’t qualify for an FHA or other traditional loans in that it require some fixes. Other users are homeowners whose credits are not good enough for a conventional loan but have lots of equity in the home and want to evade foreclosure. Whatever your reason for applying, it is recommended that you choose the right lender. If you want a short-term loan, have your lawyer to review all of the documents that your lender will want you to sign.
The interest rates as well as upfront points that are charged by hard-money lenders vary from lender to lender and also vary by state. A vast majority of Phoenix investors and lenders charge an interest rate of round 10 - 20% yearly depending on the amount loaned and the risk of the loan. One point equals 1% of the total amount loaned. Therefore, charging 1 point on a $1,000,000 loan would be $10,000. Upfront points may range anywhere from 2 - 4% of the amount obtained. Hard money lenders do take on more risk than a conventional bank loan. Because of this higher risk, their interest rates will be higher than conventional banks.
As discussed above, private lenders are more concerned with the value of the property that will be used as collateral and less concerned with the your credit worthiness. Problems with your record such as short sale or foreclosure can be disregarded if you have the funds to pay the interest. The lender will also need to know what your plans for the property are. You must present a reasonable plan that shows how you intend to repay the loan as this is the key factor in the lender’s decision. Typically, this is renovating the property and selling it or acquiring long-term financing afterwards.
There are many situations where these loans make the most sense. If you need a quick closing and a conventional bank can’t meet the deadline or you lack the patience to deal with the difficulty of obtaining a loan from the bank, this is your best option. Some lenders focus on distressed situations like when the borrower has defaulted and wishes to refinance. In a single family housing arena, hard money lenders shun distressed borrowers who live in the property they intend to put up as collateral. In addition, the law makes this kind of foreclosure time consuming and complex than an investor-owned home.
The amount first-time applicants will get would be different from what they want. Most lenders usually lend up to 70% of the After Repair Value (ARV) for the property and this money can be used for buying and renovation the property. They send their evaluators to determine the ARV of the property you need to invest in. If the price and rehabilitation costs of the property exceed 70% ARV, you will have to find ways to bridge the difference. Because hard-money lenders are paid on loan points, they can't fund borrowers for points. The borrower has to pay for the points at the closing table in order to get funded.
There are several factors to consider when applying. When applying, first need to conduct a little research on a lender close to Phoenix, AZ Maricopa County. The second thing to consider is how fast funds will be loaned. Often times, when you find a property that has been put up for sale, you want to structure the deal as fast as you possibly can. Start building the relationships with hard money lenders in Phoenix as early as possible. The other thing that you need to consider is something called a pre-payment penalty. A prepayment penalty can increase the cost of refinancing your loan.Hard money loans have a number of benefits over conventional bank financing. Lenders don’t need a good credit or substantial amounts of income, but rather focus on the values of the collateral. If you are involved in buying and selling commercial or residential properties, it is in your best interest to use hard money lenders near Phoenix to structure your deals.