Hard Money Loan vs Mortgage
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Hard Money Loan vs. Mortgage

HARD MONEY LOAN VS. MORTGAGE

Hard Money Loan vs Mortgage

If you want to know how hard money loans are different from mortgages, this post is for you! Both lending sources are options for home buyers and real estate investors. In this post we will outline the difference between hard money loans and mortgages.

Hard Money Loan vs. Mortgage

If you’ve found a property that you’d like to buy but need financing you’re likely considering one of two options.  Either you’re going to go for a conventional mortgage or you might be considering a hard money loan.  Most adults that have financed a car or a home understand how bank mortgages work.  But less adults know what hard money loans are or how-to quality for one.

1. Difference In Time To Get Financed

One of the biggest differences is the time it will take to get financing and purchase the property you’ve found.  When it comes to conventional mortgages it will take weeks, a month, or more to close.  When you get a hard money loan you’ll be closing on your new property in usually about a week or less.  If you’ve found a hot property getting the financing squared away faster than other buyers is a huge edge.  This is especially true if you’re investing in real estate and a prime property has just come on the market.

2. Duration Of The Loan vs. Mortgage

Mortgages are typically set up for 30 year fixed interest rates.  These loans are full amortized and much longer term than hard money.  In contrast a hard money loan have a duration of usually a year or less and are interest only.  At the end of the year many investors have sold or owners can now refinance.

3. Where The Money Comes From

Traditional mortgages get their money from lenders and banks who sell loans to larger banks or to various investors. In contrast the money for hard money loan generally comes from a private lender.  Some hard money lenders use lines of credit or investment funds where others are individual investors.  In the case of Brad Loans; we fund our loans ourselves.

4. Loan Or Mortgage Approval

In hard money lending collateral is the most important factor.  It overcomes issues with bad credit or no credit.  If you have enough income, the property you’re buying has enough value, and your collateral property is worth enough, you’re likely going to get approved.  In hard money lending the loan to value or LTV is an important factor.

You’ll need to have a down payment ready to cover a portion of the property’s cost or be ready to have cross collateral with additional free and clear paid off real estate to put up against the loan.  This is done to make it easier for the lender to have a high degree of certainty that they’ll get their money back.

5. Difference in Interest Rates

Hard money lending is many times done at higher interest rates.  This is because it is used for properties that are distressed and in cases where lenders have less than perfect credit.  In addition, the loan terms are much shorter and lenders need higher interest rates to justify making the loans.  Banks that chip away at you for 30 years collect more money, just slower over a longer period of time.

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Hard Money Loans by Brad Loans

If you’re looking for financing for a property in the Phoenix Valley; Brad Loans is your source for fast hard money loans.  We process your application quickly and get you the money you need for the new home or investment property you need.

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finding-aid-for-foreclosure-through-hard-money-loans
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Funding Your First Hard Money Loan

FUNDING YOUR FIRST HARD MONEY LOAN

finding-aid-for-foreclosure-through-hard-money-loans

This post includes some Key Factors in investing, especially for all ‘new investors’. In fact, anyone that is planning on investing using a ‘Hard Money Loan’ should Read This First!

Real Estate investing for the first time using a Hard Money Loan

The most important deal in your career of real estate investing is going to be that first investment. That first real estate investment, because it’s that first investment you do in purchasing real estate that will open doors for you. Generally, that first investment has more of a success rate with those who use a Hard Money Loan.

Why is the first real estate investment more successful with a Hard Money Loan?

The answer is simple: New investors have trouble in getting their first loan or two, until they have established a little capital, and a Hard Money Loan is basically the only type they will be able to get until that happens. It’s best to think in terms of a tourist when investing, that is to say; New investors who are about to invest in real estate needs to think in the same matter as a tourist thinks when planning to take a trip.

New investors need carefully plan all the right moves, deciding on the strategy to use, how to get the most for your money, which real estate is going to bring in the most profit for the least amount, and etc., another important factor would be what is the real estate’s value on the market. Keep in mind, that it is much easier to get a Hard Money Loan in some states that it is in others.

This is partly due to the different variations of the real estate laws in each state, many of which seem to be hostile towards investing in real estate, as well as being against the process of the Hard Money Loans. Of course, with due process of the law being put in place by our very own congress, I’d say that is where the blame should be pointed.

In other words, it will help to learn of all the different states and their laws on real estate investing, knowing what’s going to be there for you when doing investments in those states, and know if they are going to be available to you when investing in real estate using the Hard Money Loans.

Learn what the states are more likely to approve the Hard Money Loans, and know the hottest areas for new investors are. Don’t forget to check-out how they are doing in the market, and the places you’re more likely to be approved for the Hard Money Loan.

7 Best Arizona Cities For Real Estate Investments

The best Arizona cities for real estate investments, might surprise you.  If you’re looking for the best markets to invest in real estate in Arizona, you’re not alone.  Arizona is a hot bed for real estate activity but these 7 cities in Arizona are the best for real estate investments.  Each of the cities in this list have been ranked by real estate guides and experts as being growth areas that should appreciate in value.

Laveen

As one of the strongest real estate investment areas Laveen boasts less than 1 percent vacancy rate.  Add to that the neighborhood has an average rental return of over 11% it’s clear why Laveen is a great place to look for real estate to invest in!

Scottsdale

Scottsdale might be part of the valley, but it is a unique suburb and attracts people from all walks of life.  With exciting nightlife, highly rated restaurants, amazing hotels, and unique western flair its not surprise that many visitors choose to make Scottsdale home.  As a desirable area in the valley the real estate investing opportunities are in no short supply!

Queen Creek

Queen Creek has grown in popularity due to both closeness to the Mesa Airport and real estate costs.  With it being such a popular area, the vacancy rate is low and returns for rental properties are virtually as high as Laveen.

El Mirage

El Mirage has benefited from growth due to its great affordability.  In fact the median home value in El Mirage is below $110,000.  The area is home to over 30 restaurants, coffee shops, and bars.  If you’re seeking a prime opportunity, El Mirage might have the property you’re seeking.

South Phoenix

South Phoenix also boasts a very low vacancy rate and healthy return rates on rentals.  South Phoenix is also close to popular attractions such as the zoo, Botanical gardens, and Tempe with Mill Ave and Tempe Town Lake.  This makes South Phoenix a great place for investors to snatch up properties to renovate, rent, or to sell.

Maricopa City

Maricopa city has also seen an increase in residents which has dropped the vacancy rate below 1 percent.  With approximately a 10 percent return for real estate investments Maricopa City is a great place or investors to seek opportunities.

Tucson

While Tucson is a ways south of Phoenix, it is still a great opportunity for real estate investors.  With 3 national forests near by, great culture, and mild climate its no surprise that Tucson is a growth market.  It attracts both buyers and renters from all over the country!

Real Estate Investment Loans

Finding the property it step one, getting it financed is step two.  Brad Loans offers real estate investment loans and gets the job done faster than traditional banks.  With programs for both real estate investments and fix and flip options our team can help you get the financing you need quickly.  As a hard money lender we also don’t require the mountains of red tape traditional banks do.  Click here to: Start your real estate investment loan application today!

Many Hard Money Lenders will ‘FORGET’ to let you know these things:


Other Hard Money Lenders are not going to be too happy about me giving this information out, however, I just feel that by not telling this it would be the same as deceiving people. I have become quite tired of hearing how some of the Hard Money Lenders take advantage of investors, yes, new investors especially. They do this by giving them information that is not in its entirety, anything that will rush the close of a deal.

What makes it worst, is when they fail to give any information at all. For example, there are expenses incurred when making a purchase for property that is not included in the loan itself, the Hard Money Lenders doesn’t mention this part up front. Lenders hardly ever will mention that there will be other fees and charges that you, the investor must come up with, and that is why this is being written on your behalf.

100% Financing, yes, there are three different types:

I have heard that most new investors thought there was only one type of loan that offered 100% financing on real estate investments, this is not true. Actually, there are three types of loans that offer 100% financing on real estate investments. You have nothing to feel awful about, it wasn’t your fault the lenders held back important information such as t his. The main reason for bringing this up now is because nobody else is going to.

If you already know this, that’s great, but, if you don’t, listen-up; only a small majority of Hard Money Loans will cover anywhere from 60% to 75% of the value on the property to be purchased and/or the value of the property after the necessary repairs have been made.

In a case where you have stumbled upon a terrific deal, the Hard Money Lender can decide to finance it 100%. Which brings us to the first type of 100% financing.

100% Financing – Type (1):

This type covers 100% the property cost, no more, no less. However, there are other fees involved, and the do add up, and  fast. Here are some of what those fees are: Closing costs, repair costs, earnest money, escrow, insurance fees, mortgage insurance fees or title insurance, among a few others that could come up.Usually, when lenders refer to 100% financing this is the one they’re referring to.

100% Financing – Type (2):


Occasionally a Hard Money Lender will finance 100% on the purchase price, plus the repair costs involved, and sometimes even the closing costs, of course, it would have to be some fantastic deal you got a hold of for this to happen. However, as the investor you would still be accountable to come up with the other fees, such as: The closing costs, earnest money, inspection fees, evaluation fees, insurances, and etc..

100% Financing – Type (3):

This one is referred to as the ‘Holy Grail’ of investment financing,. It does just what it says: Gives 100% financing that covers ‘EVERYTHING’, and I mean everything. The price of the property to be purchased, repair costs, earnest money, insurances, escrow, closing costs, ‘EVERYTHING’. This will be the only financing option available that offers the investor the opportunity to land a deal without any upfront cost out of their own pocket. You’ll not find this type of financing offered by many, yet, we offer it to you.

Before giving an explanation on how we can offer a true 100% financing to clients let’s first explore the importance of the starting money:

You could take $1,000 dollars and turn it into $10,000.

The following is an itemized table of everything:

Common Starting Money Items
Item Cost
Earnest Money $500 – $1,000
Evaluation $600
Inspection $500
Total: $1,600 – $2,100
   

These are among the most common things to be over looked during the process of a Real Estate Loan:

  • Repair costs
  • Earnest money
  • Insurances
  • Escrow
  • Closing costs
  • mortgage insurance fees
  • title insurance.
  • Home owners insurance

There are a few more of these as well…

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Phoenix Hard Money Lender

Our mission is to always have your wishes and interests in mind, and our goal is to keep a satisfied customer by ‘opening the door to their financial freedom’, and so that our customers will return to us the next time they need a loan. Furthermore, we do not anticipate gain from any of customers. Our gain will come from treating our customers fairly, and in due time.

When we hold our heads up its not to look into the clouds, but because we can feel proud, and good about the way we do business. By helping you succeed the first time around, we are hoping that you will return again, and again, and even tell of your great experience to all your friends and family so they’ll also come to us.

Give us a call today if you are interested in hard money loans for fix and flip, finishing construction,refinancing your mortgage, buying land, or need loans for other investment opportunities but have bad or no credit. Give Brad Loans a call today at (602) 999-9499.

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FHA Home Loan Pitfalls
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FHA Home Loan Pitfalls

FHA HOME LOAN PITFALLS

FHA Home Loan Pitfalls

FHA loans are quite popular simply because it makes it easy for most people to purchase a home. Home ownership is a reality for many people, but these types of loans are not for everyone. Ensure that you fit the right type of profile and that you understand the disadvantages of getting a FHA loan before you fall in love with getting one.

Highlights of a FHA loan

Even if you have limited funds for a down payment and have damaged credit, you can qualify to get a home loan with a decent interest rate.

Down Payments: a FHA loan will let you put as little as 3.5% down. This will allow you to purchase a more expensive home with less money, and you are able to reserve some funds for improvement projects or other types of goals.

Credit issues:Those who have a troubled credit history will often have a hard time of getting approved with a conventional lender. FHA backing will allow you to be approved with a low credit score.

Home Improvement: FHA 203k loans will let you fund home improvement projects and buy a house at the same time. Combined with other types of features, they also make it easy and inexpensive.

Drawbacks of using a FHA Loan

When you are looking to purchase a home, it is wise that you evaluate whether or not getting a FHA loan will help you. Look at the bigger picture and then consider all the financial goals.

Low Down Payment: Low down payments can be a red flag. Putting 3.5% down could indicate you are financially stable and a home loan may be a higher risk.

It is worth waiting until you can save up for a larger down payment or looking at a less expensive home? Remember, the more that you borrow, the more interest that you will pay, which will make your house more expensive.

Upfront Insurance: If you put less 20% down, it means that you will be required to pay for mortgage insurance, with FHA loans having 2 types of insurance that you will need to pay for the whole life of the loan.

There will also be an upfront charge of 1.75% and most borrowers tend to wrap this particular fee into the balance of the loan. Remember, the more that you borrow, the more interest that you will pay. You will pay more than 1.75% unless you write a check at closing. A larger loan will also mean that you will have a larger monthly payment.

Ongoing Insurance: You will also have to pay monthly mortgage insurance. Ongoing insurance premiums are between 0.80 and 1.05% of the loan balance, even though it can go as low as 0.45% if you have a 15 year FHA loan. This extra cost means that you will end up paying additional every month. Whereas, private mortgage insurance may be cancelled once you have over 20% equity within your home. However, FHA insurance is unable to be canceled unless loans were obtained prior to June of 2013. Basically, you will have to refinance or pay the loan off to eliminate that cost.

Loan Choice: You will have limited choices when getting a FHA loan. For many borrowers, there is a 15 year or 30 year fixed loan which is great, so there isn’t a problem. But, there are situations when an interest only mortgage or adjustable loan is much better. Don’t just use them to lower your payment, make sure you have a bigger plan.

Property Limitations: Getting a FHA loan approved means that the property meets certain standards. For instance, basic safety and health requirements are met. If you are looking for a fixer upper, a good bargain, or a foreclosure, the FHA loan won’t work. For the properties that are move in ready, a FHA loan will work. But if you are buying a condo it could be challenging. If there aren’t enough units in the building that are owner occupied or there are other issues, a FHA loan may not work.

Qualifying: FHA loans may not always get approved. You will still need a minimum credit score, and need documents that state you have plenty of income to repay the loan. For qualifying for the lowest possible downpayment, you’re going to need a 580 or higher on your FICO score. However, you may get approval with a score under 580 if you can provide a higher down payment.

Seller Hesitation: There are some situations that FHA loans could be a disadvantage when you are buying a home. Sellers want to know about their potential buyers, and a FHA loan doesn’t say strength. What is more is that the seller may fear that the extra requirements are going to slow down the deal. If you are purchasing in a hot market, then try a different financing form.

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Alternative Loan Sources

FHA loans aren’t the only way to get the house you need.  Banks will work with people with good credit, hard money lenders work with fix & flip investors and home buyers with challenged credit, and military personnel are many times able to secure VA loans.  Choosing the right solution for your situation helps ensure that you get the home you need.

Bank Loans

A standard home loan that isn’t backed by FHA may solve most of the issues above. Even if you think you won’t be approved, it is worth trying for a conventional loan so that you can see what is out there. A conventional loan will let you have more flexibility, potentially purchasing a home with a 5%-10% down payment.

Hard Money Home Loans

If an FHA loan isn’t right for you; a Hard Money Loan might be the best way to get the house you need.  Hard money lenders can loan to borrowers that have bad credit, no credit, and a wide variety of other credit challenges which prevent them from getting conventional loans or FHA loans.  In fact with hard money lending you can qualify for a zero money down home loan with cross collateral. Read more about: How to quality for a hard money loan.

Military VA Loans

If you’re a member of the armed forces you might be eligible for a VA Loan for your home.  This is a great opportunity provides to veterans to purchase houses through a government funded service.  Interest rates are low and many times they work with challenged credit situations. Click here: For more information on VA Loans.

 Phoenix Valley Hard Money Lender

If you are looking for a hard money lender in the Phoenix Valley, Brad Loans is your source for the loan you need.  We can help you purchase a home to live in, or we can help you fund a real estate investment opportunity such as fix and flip properties.  We work with people with bad credit, no credit, and can overcome many of the roadblocks that standard FHA loans and traditional bank loans have.  For more information about how Brad Loans can help you get the money you need please call us at 480-948-0880 or fill out our hard money loan application.

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What Is A Bridge Loan
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What Is A Bridge Loan?

HOW TO GET A HARD MONEY LOAN

What Is A Bridge Loan

If your Googling “What Is A Bridge Loan“, this post should help clarify. Here Brad Loans by eMortgage Inc explains what a bridge loan is, how it works and what it is used for.

What is a bridge loan?

A bridge loan is a temporary loan that will bridge the gape between sales price of a new home and your new mortgage, if the old home hasn’t sold yet.

The bridge loan is secured to the existing home. The funds are then used as a down payment on the new home.

A bridge loan happens to be quite popular within a certain type of real estate market. Whether or not that it is a good option will depend on various factors. The reason that a buyer will take out a bridge loan is because they want to buy another place before they sell their existing home. That may sound great, but a bridge loan does have risks.

For instance, whenever a home buyer is purchasing another home before selling their home, there are 2 ways to find the down payment for the new home which is financing through a home equity loan or a bridge loan.

It is best to wait before buying a home and selling your home first, but most think its best to locate their move in home first.

If you are certain that your existing property will sell, then it will remove fears about what happens if it doesn’t. You may want to talk to an advisor before you get a bridge loan. The main advantage of a bridge loan is to avoid a bad offer and make the move up offer more attractive to a seller.

Normally, a home equity loan is much less expensive, but a bridge loan has more benefits for certain borrowers. Additionally, most lenders will not lend a home equity loan if the home is on the market. Smart borrowers will compare the benefits between the 2 types of loans and find which one is better for their situation and plan ahead before making an offer on another home.

A big benefit for bridge loans is that it allows you to purchase a new home without worrying about selling right away.

Is the balance off? The account balance that is. Below is how much money that you should keep within your savings and checking accounts.

Get it right! In the seller market, most sellers won’t accept a contingent offer. If you are selling a home, that may mean that you can’t buy a home without contingency.

How does a bridge loan work?

Most lenders will not have set debt to income ratios or FICO minimums guidelines. Funding is actually done with an underwriting approach. This requires guidelines in long term financing that is obtained for the new home.

There are some lenders that will make a conforming loan to exclude bridge loan payments for qualifying purposes. This means that you are qualified to buy the new home by adding your existing loan payment onto the new mortgage payment. The reasons that you may be qualified on 2 payments is because:

  • For a short time, you will own 2 homes.
  • Many buyers have an existing mortgage on old home.
  • Buyer is likely to close new home purchase before selling old home.

If the new mortgage is a conforming loan, then lenders will have a bit more ways to be able to accept a much higher debt to income ratio by being able to run it through automated underwriting programs.  If the new loan is a jumbo loan, then many lenders will restrict it to a 50% debt to income ratio.

Average fee for a bridge loan

Rates will actually vary between lenders, but below is an average estimate for a bridge loan in California. The interest rate will fluctuate, but for this instance, we will use 8.5%. These types of bridge loans will not have payments for 4 months, but interest will build up and be due whenever the loan has been paid based on the sale of the old property. Below are sample fees:

  • Drawing/wire/courier fee: $75
  • Recording fee: $65
  • Notary fee: $40
  • Title policy fee: $450 or more
  • Escrow fee: $450
  • Appraisal fee: $475
  • Administration fee: $850

Additionally, there will be a loan origination fee for the bridge loan that is based on the loan amount. Each point will be equal to 1%. Below are the average fees and they will vary.

  • $150,000 – $250,000 = 1 point
  • $100,000 – $150,000 = 0.75 point
  • $25,000 – $100,000 = 0.50 point

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Home Purchasing Benefits of Bridge loans

  • If there is a contingent offer to purchase, the seller has a Notice to Perform, then the purchaser may then remove any contingency and move forward with the purchase.
  • The buyer can put their home on the market immediately and buy without restrictions.
  • A bridge loan may not require a monthly payment for several months.

Home Purchasing Disadvantages of Bridge Loans

  • Buyers are often qualified by a lender to own 2 homes and most may not meet this requirement.
  • Making 2 mortgage payments plus interest on a bridge loan may cause stress
  • Bridge loans will cost much more than a home equity loan.

Bridge Loans In Arizona

If you are looking for bridge loans in Arizona, Brad Loans by eMortgage can help. We offer bridge loans, hard money loans and fix and flip loans in Phoenix, Arizona and the sourounding cities.

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How To Get A Hard Money Loan
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How To Get A Hard Money Loan

HOW TO GET A HARD MONEY LOAN

How To Get A Hard Money Loan

If you’re searching “How To Get A Hard Money Loan” you’re probably looking to finance a real estate investment project.  There are a number of ways to get funding such as private loans, conventional loans, and hard money loans. In Arizona  each of these options carry their own regulations, guidelines, and are all different.  The application process for a hard money loan vs. a conventional loan from a bank is much different, for example.

Conventional Loan Drawbacks

If this is your first real estate investment or you are a first time borrower, you may think that bank financing is the only way that people get the funding they need.  Conventional bank loans can be very slow and present a number of complications.

Pre-approval Process – Conventional bank loan applications start with a pre-approval process which is followed by requests for virtually every imaginable financial document.  They will typically request copies of your tax returns, bank statements, credit card statements, and will want to know where your down payment is coming from.  If you have money gifted to you or another investor involved in the project they will expect notarized documents attesting to the source of your down payment.

Bank Property Appraisals – Another standard practice of conventional loans is an inspection and appraisal of the property by an agent hired by the bank.  In the case of fix and flip investments banks are typically hesitant to loan based on what a property will be worth after renovations, until the renovations are done.

Lengthy Approval Process – After you have jumped the documentation and appraisal hurdles it can still a month or more until they give you the go ahead on closing the deal on the property.  This means if you have identified a prime home or investment opportunity someone else may be able to get the deal done faster and take the opportunity right out from under you.  This can be an incredibly frustrating experience for investors or potential home buyers.

Restrictive Credit Limitations – Conventional bank loans have much different standards and will not offer financing to people who have bad credit, or no credit.  If you are just starting out and don’t have any credit history, or you have some history that meant bad credit you will most likely be denied a conventional loan.

Hard Money Loan Benefits

Clearly there are limitations to convention loans offered by banks, especially for fix and flip opportunities.  They take longer and are limited by bank conducted property appraisals. Hard money loans offer huge advantages for investors and home buyers.

Much Faster Application Process – The application process requires less documentation and is conducted much more quickly.  The borrower’s financial history will be looked at but more importantly if the borrower is able to produce a down payment and the project’s merits.  Many loan applications can be approved and funded in as little as 7-10 days!  Compared to the month or more that conventional loans you will have a much greater chance of getting the property secured for your real estate investment project, or the home of your dreams.

Greater Fix & Flip Flexibility – Hard money lenders evaluate the feasibility of project to turn a profit based on what it will generate during the renovations or upon completion of the project when it is sold.  The condition of the property is taken into consideration but hard money lenders are not as concerned with the present value of the property as they understand that an integral element of the process is to improvement of the property.   A factor that hard money lenders value is, how quickly a real estate investment will make them back their investment, plus the interest on the loan.  Read more about: Fix And Flip Loans

Funding For Bad Credit – Whether you’ve just started out and don’t have any established credit history or if you have had problems with your credit, hard money lenders have much more flexibility to who they make loans to.  This is a major advantage for a lot of consumers that have unavoidable credit challenges but still want to purchase a home, or want to get involved with real estate investing.

How To Get A Hard Money Loan With Bad Credit

Conventional loans are virtually impossible to get with bad credit, or no credit.  Hard money lenders look more at your ability to pay back the loan and the overall merit of the real estate purchase.  With the right down payment or collateral property people will bad credit are able to purchase the properties they want to live in, or they would like to invest in.  A major advantage of hard money lending is that homebuyers or real estate investors can get funding despite credit challenges.

It’s easy to get a hard money loan and you start by simply filling out a hard money loan application.  Less financial documentation and time is needed to find out if you quality for the loan you need.

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How To Get A Hard Money Loan in the Phoenix Valley

If you live in the Phoenix Valley or want to invest in the real estate market in the area Brad Loans by eMortgage is your source for hard money lending.  Our team makes it easy to apply and does our best to get everyone approved for the properties they want to purchase.  We offer financing to a lot of people when banks cannot, or will not offer financing.

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Need a Private Money Loan Anywhere in Arizona?

Brad Loans offers private money loans in many areas of Arizona including Phoenix, Mesa, Tempe, Chandler, Gilbert, Cave Creek, and Flagstaff.

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What Are Points On A Hard Money Loan
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What Are Points On A Hard Money Loan?

WHAT ARE POINTS ON A HARD MONEY LOAN?

What Are Points On A Hard Money Loan

If you’re searching the question “What Are Points On A Hard Money Loan?” you are looking for a better understanding of the inner workings of the hard money lending process.  This post is made to help you better understand what points are and how they related to hard money lending.

Fee Based Income on Hard Money Loans

In addition to interest, a hard money loan has other fees charged by the lender. These fees are a source of income for the hard money loan lenders, therefore it is important to fully understand the income sources of lenders so you have a fair negotiation process, which is how you will obtain the best term and rates.

Points:

A percentage of the total loan amount is calculated. One point equals one percent of a loan. Depending on the lender, some hard money lenders will charge points to simplify the closing costs without providing details of separate underwriting fees, or others. Also, some lenders will charge additional points besides these fees. The charged amount will depend on transactions and agreements between the involved parties, risk, complexity and loan-to-value (LTV).

Example:

You have a $500,000 loan, and you are charged 3 points (3%), totally $15,000. These points are often referred to as ‘up front’ points since they are included in closing costs and get disbursed during the tart of your hard money loan, rather than being collected over the span of the loan. However, there are situations when hard money lenders might agree to pay referral fees to another hard money lender for sending you or private investors. Furthermore, lenders might agree on sharing part of the points collected with private investors.

Possible example of up front point distribution:

-$4,000 to private investor for increasing yields

-$3,000 to referring hard money broker

-$8,000 to hard money lender

Underwriting Fees and Other Fees

These fees get charged to you as an additional cost that increase the points of a hard money loan. With private lenders, some will charge them, others will not. Although certain fees just ‘pass through’ hard money lenders, including credit report fees and appraisal fees, others are additional compensation sources.

Example:

Underwriting Fees – This is a flat fee, generally ranging between $750 to $2,500 and is charged to hard money loans. Overall price depends on the complexity. There are cases where this fee gets incorporated in the points charged, but it could also be charged as a separate addition.

Processing Fees – This is a flat rate that is charged for the processing of a loan.

Doc Prep Fees – This is a flat rate charged for the loan document preparation. There are cases when these fees are simply passing through due to hard money lenders using private companies or creating documents, while other times the fee will be a source of additional income for the PML.

Referral Fees

This is an agreed loan percentage or dollar amount between the referred business and hard money lender. If you got referred to the hard money lender, it is likely that referral fees are part of the fees you will be paying to the lender. Because of specialized nature behind private money lending, every hard money lender is not able to provide ‘all things to all clients’. The funds they lend get decided on by investors that they represent. Thus, referral fees are a common factor.

Loan Servicing

This is a fee paid by the investor to a PML, if they are servicing the loan. A PML will retrieve your payment, maintains all required records, then provides you an applicable report. The servicing fee varies; some may be a flat rate while others charge a percentage of a loan balance. For example, 0.25% to 1% of original loan, which is calculated annually and collected monthly.

Late Fees

Another source of income hard money lenders collect are late fees, which occur if you make payments after the specified date within your promissory note. Late fees are often split with an investor (50/50), this is paid upon you paying the fee.

Foreclosure Fees

This fee is generated when a foreclosure occurs, sometimes being paid to a hard money lender, but not always. There are various PML that offer foreclosure services, thus act as a source of profit revenue or hard money lending companies. However, there are other situations where hard money lenders outsource the entire foreclosure service, and do not collect any revenue from foreclosure fees. Usually, this type of income does not get split with investors.

Renewal Fees

This is a fee that you pay for renewing your current loan with mutual consent from a private investor. Investors will likely be willing to renew your loan if you are a quality borrower who pays on time. This maintains their funds earned. Renewal frees are commonly paid by the borrower, either up front or as additional cost to the loan principal.

Each hard money lender has a business structure slightly different than another. The profit revenue may come from a single source, or a combination of the above sources. Keep in mind that nothing is set in stone, and fees of a hard money loan can be negotiated.

By having a better understanding of fees in association with a hard money loan, you will be able to negotiate a better rate for your loan. You can improve negotiation position by having a great track record, low LTV and high collateral, which can result in a much lower cost.

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Phoenix Valley Hard Money Lending

If you’re looking for a hard money loan in the Phoenix Valley, Brad Loans can help.  We finance both investors and owner occupant purchases with up to 100% loan to value with cross collateral.  That means you could get a loan with little to nothing down with the right combination of collateral.  Brad Loans has helped thousands of Arizona residents get the money they need for fix and flips, bridge loans, home purchases, or other real estate endeavors. To learn more about what Brad Loans can do for you fill out a hard money loan application or give us a call at 480-948-0880.

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Hard Money Guide
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Hard Money Guide

HARD MONEY GUIDE

Hard Money Guide

When hearing “hard money loan” or the words “private money loan”, what is your initial thought?

In the past there have been some shady lenders that tarnished the industry of hard money lending when some predatory lenders attempted a ‘loan-to-own’ method that provided loans that were quite risky to borrowers who use real estate for collateral, which the intention was for the properties to be foreclosed. Fortunately, those dark alley lenders making sky-high interest loans are a thing of the past and do not exist in hard money lending today. However, there remains a certain residual stigma for real estate investors that have not used recent services of a reputable hard money lender.

Within this article, the basics will be covered regarding hard money loans, it includes:

What’s a Hard Money Loan?
Types of Property for Hard Money Loans
What Types of Situations Should Hard Money Loan Be Used For?
Who Should Use Hard Money Loans?

Hard Money Loan Interest Rates and Points
Loan to Value Ratio of Hard Money Loans
Hard Money Loan Borrower Requirements
Locating Hard Money Lenders

What’s a Hard Money Loan?

In simple terms, hard money loans are short-term loans that are secured with real estate. Funds come from private investors, or fund of investors, rather than a conventional lender like a credit union or bank. Generally, terms average 12 months, but the loan term may be extended to a longer term of 2 to 5 years. Hard money loans require borrowers to make a monthly payment to cover just the interest, or interest plus a portion of the principle. At the end of the term, making a balloon payment is common.

When it comes to the overall amount that hard money lenders can lend a borrower is mainly based on the overall value of the subject property. Properties can include already owned property the borrower would like to use for collateral, or it could be a property being acquired by the borrower.

A hard money lender is mostly concerned with the property value, instead of credit score of the borrower. However, credit score remains a partial factor. A borrower that is not able to obtain a conventional loan because of recently foreclosing, or a short sale may still be able to obtain a hard money loan with a sufficient amount of equity in a property which is used for collateral. When banks tell you “No”, hard money lenders may tell you “Yes”.

Types of Property for Hard Money Loans

Borrower are able to obtain hard money loans on just about any property type, including single-family or multi-family residential property, commercial property, industrial property, even land.

There are some hard money lenders which will specialize in a certain type of property, such as residential, and be unable to provide land loans, just due to their lack of experience with the area. The majority of hard money lenders will have a certain loan niche that they are comfortable with. It is important to ask ahead of time which loan types they are able and willing to do.

Furthermore, there are many hard money lenders that refuse to make deals using owner-occupied residential property because of additional regulation and rules. However, there are some that do not mind wading through paper work. Any hard money lender will be willing to do loans in the 1st position, however there are less that are willing to do 2nd position loans because the risk to the lender is increased.

What Types of Situations Should Hard Money Loan Be Used For?

While hard money loans can be helpful, they are not the appropriate approach for all situations. When you are planning to purchase a primary residence, have good credit, an income history, and no problems such as foreclosure or short sale, the best approach for the borrower would be to use a conventional financing method with a bank, if there is time to go through the lengthy process of approval that banks require. However, when conventional financing through a bank is not an available option, or you need the loan in a shorter time period, hard money loans may be the appropriate approach.

The following are ideal situations for hard money loans:

  • Land Loans
  • House Flipping
  • When borrower has issues with credit
  • Construction Loans
  • When real estate investors require fast action

Who Should Use Hard Money Loans?

Hard money loans are used by real estate investors for various reasons. However, the main reason behind using a hard money loan is the quick process of obtaining funds. It is common for hard money loans to have funds available within a week, compared to 30 to 45 days from a loan funded by a bank. The hard money loan application process usually takes one to two days, while some loans may be approved the same day. With a bank loan, you are lucky to hear back about the approval the same week.

Being able to obtain funds at a quicker rate compared to a traditional bank loan provides a large advantage for the real estate investor, especially as real estate investors attempt to acquire properties that have numerous competing bids. Therefore, a quick close using hard money loans can be used to obtain the attention of sellers, setting offers apart from other buyers using a slower conventional method.

Although, another popular reason for investors using hard money loans is that a bank has rejected their application for a conventional loan. Because things do not always happen as planned, things in the past can prevent banks from approving a loan, including foreclosures, short sales, and credit problems. Also, banks require an income history. If the borrower has recently obtained a new job, this may cause banks to deny a loan request simply because f insufficient income history. The bank does not focus as much on a health income amount, as they do the income history. However, a hard money lender is able to assist with a loan without stressing over these areas, long as loans are repaid and the equity value of the property is enough.

Hard Money Loan Interest Rates and Points

When it comes to the interest rates and points that hard money lenders charge, it varies between lenders and region. For instance, a hard money lender located in California will often have a lower rate than lenders located in other areas of the country, because there are many hard money lenders in California. Due to an increase in competition, prices decrease.

Compared to a conventional bank loan, hard money lenders have a higher risk rate when loaning funds. Because of this increased risk, hard money loans tend to have a higher interest rate than your conventional loans. A hard money loan can have an interest rate ranging between 10% to 15%, depending on the lender and their risk in lending the funds. Meanwhile, points may range between 2% and 4% of total loan amount. Based on loan to value ratios, the interest rates and points can greatly vary.

Loan to Value Ratio of Hard Money Loans

For a hard money lender to determine the amount they are able to lend, they use a ratio of loan amount, which is divided by property value. Thus, the term loan to value (LTV). It is common for many hard money lenders to offer between 65% and 75% of the current property value. However, there are some lenders willing to lend based on the after repair value (ARV), where by estimating property value after improvements are made. From the perspective of hard money lenders, this increases the risk as the amount of capital the lender puts in, will decrease the capital investment of the borrower. Because of the higher risk involved, hard money lenders will have a higher interest rate.

Also, some hard money lenders are willing to lend a higher percentage of the after repair value, or finance the cost of rehab. From the borrower’s perspective, this may sound great, but due to the higher risk involved, they have a much higher interest rate and points. For this type of loan, you can expect an interest rate between 15% and 18% and 5 to 6 points when lenders fun a loan with a small to no down payment from borrowers. Although, there are situations where it will be worthwhile for a borrower to pay the exorbitant rates to secure deals if they are able to generate a profit on the project.

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Hard Money Loan Borrower Requirements

As previously discussed, the main concern of hard money lenders is the equity amount a borrower invests within a property being used as collateral. The credit rating of a borrower and credit problems such as foreclosures or short sales can be over-looked by hard money lenders, long as the borrower has enough capital to pay the loans interest.

In addition, hard money lenders have to take the borrowers plan of the property into consideration. Borrowers have to present reasonable plans showcasing their overall plan for the property, and how the intend to pay the loan off. Generally, this includes making improvements on the property, then reselling it, or obtaining a long-term financing option later.

Locating Hard Money Lenders

There are various ways that you can go about locating a reputable hard money lender in your area. An easy method for finding a local hard money lender is using Google to search for the following: [your area] and “hard money lenders”.  The search results will provide individual companies, along with a list of various hard money lenders that others have complied. This provides many lenders to start contacting, then evaluate the ones of interest.

In addition, you can locate hard money lenders by attending a local real estate investor club meeting. Most cities have these club meetings, and hard money lenders tend to attend in search of networking with potential borrowers. However, if there are no hard money lenders at the meeting you may ask other real estate investors if they can recommend a hard money lender. You may find that conventional mortgage brokers, real estate brokers, or other real estate professionals can refer experienced hard money lenders. You can see which hard money lenders are most recommended by leveraging your current network.

Hard Money Loans in Arizona

In Arizona the most experienced and trusted hard money lender is Brad Loans by eMortgage.  For over 40 years our real estate and hard money lending experience has made us the expert in the Phoenix Valley.  We fund both owner occupant hard money loans and real estate investment loans that are common for fix and flip projects.  Our team can help you purchase a property or refinance a property you already have purchased.  Borrowers with no credit or bad credit are accepted and we can loan up to 100% loan to value with cross collateral. If you are in Arizona and are looking for a hard money loan to purchase a property, look no further than Brad Loans.  To apply for a hard money loan please fill out our loan application form.

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Private money lending in an IRA
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Private Money Lending in an IRA

PRIVATE MONEY LENDING IN AN IRA

Private money lending in an IRA

If you’re searching “Private money lending in an IRA” we have the knowledge and experience you need.  When you use an IRA to invest within a private loan or hard money loan, it is a great strategy to enhance your returns.

HARD MONEY LENDING

The term IRA is used loosely when it comes to referring to any type of retirement account such as the standard IRA, SEP-IRA, 401K, Roth IRA, Money Purchase Plan and the Defined Benefit Plan. There are a lot of legal differences in retirement accounts, but when it comes to the purposes of hard money lending as well as private money lending, they will be lumped together as one for an easier reference. Since various states will use different security instruments for loans, the generic reference of note or mortgage shouldn’t be interpreted to mean trust deed, mortgage, land contract, or promissory note.

Many people honestly believe that funds that are in IRA’s are limited to only investments in bonds and stocks. That just isn’t true. IRA’s are able to be invested in various alternative investments like private placements, mortgages, limited partnerships, real estate, and just about any other type of investment that you can think of. The key is to be able to use a special custodian, like Pensco Trust Company, that will manage and properly account for your transactions. The custodians handing of alternative investments are normally referred to as self-directed IRA custodians and are a great way to make hard money loans or private loans.

We will now begin to explore note investing in your IRA by considering a simple case: Bob investor makes a $100,000 interest only loan to Mr. Barker at 6% interest and originates the loan using his self-directed IRA. For it being our first case, we should assume that Mr. Barker pays each loan payment on time and pays the loan off before 5 years.

Life is great for Mr. Barker and Bob private investor. Mr. Barker gets a private loan that he may not have gotten and Bob investor enjoys 6% tax deferred income in his IRA.

So, how would you make this simple hard money loan using IRA funds? It isn’t very different than getting a mortgage from your traditional checking account. Simply, follow the six steps below:

Open Self-Directed Retirement Account

Most of us are used to using the big brokerage houses as our custodian for our retirement savings. But, it is those firms that will only permit investors to invest in publicly trader securities and personal loans are not an option. There are plenty of companies that do specialize in self-directed investments which allow you to move into an area that is referred to as alternative investments.

Properly Vest a note for Hard Money Loans

When it comes to traditional transactions, your note may be vested in your name or the name of your company, but in a self-directed IRA there is normally more details when it comes to vesting the note. An example of this we will reference the custodian and the account number and IRA holder:

XYZ Custodian Company, FBO “Bob Investor IRA Account #098765”.

Sign all agreements which will authorize your custodian to fund the note.

The Custodian will then have pre-established procedures that you will need to follow and most will have a form agreement for you to sign. Brokers that specialize in private money lending will be glad to help you. This particular agreement will authorize the custodian to release the funds. Many custodians will also have a checklist that you can use to ensure that you will cover each step as the loan begins.

Close the transaction.

Most investors will use an escrow, attorney, or title company to close the transaction. Select the right party that has worked with a self-directed custodian and your life will be so much easier.

Send Copies of the security agreement to your custodian.

Once the note has been funded, the IRA custodian will need to keep the actual promissory note and recorded security instrument such as a mortgage, deed of trust, etc. This is very similar to the conventional IRA brokerage holding on to your stock certificate.

Get with a servicer to send payments to your custodian.

Many investors will use a third-party loan servicer in order to collect payments from the borrower. The servicer will then have an authorization agreement which will state who the payments are sent to.

AVOIDING HARD MONEY LENDING

Even though it is nice to think that all borrowers will pay on their mortgages as reliably as Mr. Barker does, it is normally not the case. Believe it or not, note private investing will get more complicated when the borrower does not pay on time and then there are more problems that are particular to retirement accounts that will make note investing very risky if you do not know what to look for.

Hard Money Advances

There are plenty of times when an investor needs to have advanced funds against their mortgage. An advance happens to be a payment of funds by the private investor for something that should have been paid for by the borrower, or for services that are needed to collect collateral. One advance example happens to be insurance. The borrower’s home insurance may lapse and in order to protect your note, you will need to advance to renew the policy or advance in order to force place insurance from a specialty insurance company.  Delinquent property taxes are another good example when it comes to advancing may be needed on a private loan.

When it comes to traditional loan investment, there is an issue when it comes to advancing funds which is coming up with the advanced funds. With a self-directed retirement account, you will first need to figure out how you will get the money into the IRA before you are able to advance it. If you have already maxed out the contribution to your IRA you may not be able to get an advance.

Advances can be large. Consider a foreclosed home from a hard money loan, that upon possession needs $50,000 to remodel it to get it to fair market value for the property, or you can consider bankruptcy that will last for several years and will require the advance of thousands of dollars in Sheriff or trustee and attorney fees.

Make notes that you are not allowed to pay for any type of IRA owned asset or IRA expenses personally, as this is considered prohibited transactions such as being considered self-dealing with your IRA. You will need to remedy for the shortfall of funds on your IRA which would be to transfer funds from any other IRA that you might have at another institution or to rollover funds from another qualified pension account.

If those solutions do not work, there are other types of alternatives. The Department of Labor, which governs over retirement accounts has recently issues some guidelines that will enable you to make a loan to your IRA. The loan may be made to your IRA, if it is interest free, unsecured, and provided that it is:

  1. A) For the payment of any ordinary operating expenses, or
  2. B) For the purpose of incidentals to the operation of the IRA.

If the loan is supposed to be for longer than 60 days, then the documentation for the loan must be created and then signed prior to the expiration of the 60 day period.  Loans cannot be used to increase your purchasing power of your IRA. Take for example, you are not able to loan your IRA $100,000 to purchase another property.

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PROHIBITED TRANSACTIONS

When it comes to using an IRA to invest in real estate or notes, it is vital to avoid completing a prohibited transaction. It is this type of transaction that is improper use of your retirement account by you, your beneficiary, or any other disqualified person. A disqualified person is your fiduciary or members of your family such as your spouse, a lineal descendant and any spouse of a lineal descendant.

The below examples are prohibited transactions with the traditional IRA:

  • Selling property to it
  • Using it as security for a loan
  • Borrowing money from it, except as outlined within this article
  • Purchasing property for personal use for future or present with IRA funds
  • Receiving any type of unreasonable compensation for managing the IRA funds

Essentially, you will need to conduct your business with any unrelated third parties. So you would not want to make a loan to a stranger, then hire your spouse to service the loan. You would not want to hire your brother to do your taxes for a certain fee charged to the IRA. You must be very careful. The prohibited transactions are not always obvious. You should consult the attorney, a CPA, or your custodian that is well versed in these types of transactions before you are able to experiment on your own. There are several self-directed custodian companies that will be able to maintain a directory of professionals that will specialize in these areas and will be a lot of help.

If the IRS determines that you have conducted a prohibited transaction, your whole IRA may then be disqualified and subjected to substantial fines, taxes and penalties.

UNRELATED BUSINESS TAXABLE INCOME (UBTI)

Unrelated business taxable income is normally defined as the gross income that comes from any unrelated business or trade that is normally carried out by an exempt organization. The tax that is on the UBTI is called the UBIT or Unrelated Business Income Tax.

Most of the time, UBTI will come into play when there is debt involved in a real estate transaction. Take for example if your IRA purchases a home for $100,000nd you use $30,000 of the IRA funds and borrow $70,000. Even though the transaction is fine to do with an IRA, the IRS will not allow you to benefit from the whole income of the property. You may only benefit from the income as it relates to the IRA funded part which would be $30,000. This means that you would be paying 70% tax on the investment income and income of the property if there is any and then receive tax-deferred benefit from your IRA of 30%. The debt financed portion is known as the Unrelated Debt Financed Income or UDFI.

Many people truly believe that the UBTI is not permitted within your IRA. It is actually permitted. You will have to be completely aware of it and ensure that your tax accountant files that right form (IRS 990 T form). If you are investing in a partnership that happens to be purchasing mortgage notes or real estate, you should be very careful that you know exactly how the partnership is planning to use the leverage, if at all. The use of leverage in the partnership, if it is not properly documented and treated may then create unintended UBTI which is potentially subjected to large penalties and fines.

When it comes to the note business, UBTI may come in to play when you foreclose on a home and take the existing lien. Take for example your IRA lends a second mortgage for $50,000 when the first mortgage is $100,000. If the investor foreclosed, then the investor would then inherit $100,000 worth of debt and may be subjected to UBTI.

What you may not know is that this type of scenario only really comes into play if the investor converts the property into a long-term rental hold. Due to the debt being acquired was a normal part of the operations of the mortgage note, the UBTI would not be considered if the investor liquidates the property.

There are a lot of complicated rules that surround leverage and the use of retirement accounts. You should be aware that the leverage and impact to your IRA and consult professionals in order to guide you to ensure that you are making prudent business decisions.

USING AN LLC OR CORPORATION

If you plan to make several loans from your IRA, then you may want to become an LLC or corporation. When you set this up, you will have your IRA be the owner of the company while you may be the president. As the president, ensure that you do not pay yourself, as that would be a prohibited transaction. Be aware that many custodians will not accept single member entities such as LLC’s that are funded solely by an IRA and managed by the IRA for fear that the IRA owner will expose their IRA to disqualification as the result of prohibited transactions. Many custodians will review your investment transactions that they execute for their clients with the intent to prevent any prohibited transactions.

Whenever an IRA fund is invested in and LLC, the IRA owner will be the president and the custodian is no longer involved with the transaction execution as everything will be handled by the IRA owner and president. There are some custodians that have addressed several concerns about having a potential prohibited transaction, while still managing to accept the single member investment entities, which require a qualified and independent professional such as an attorney or CPA to sign an agreement that states the client requires that they review and then approve each transaction.

The benefit of setting up an IRA that way is that when your IRA purchases 100% interest in a new corporation or LLC, the cash is then sent to the checking account of your new company. The mortgage notes that you have vested are in the name of the company and not your IRA and you have checkbook control of your own IRA, which makes it easier to advance funds, make loans, etc.

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Receiving Your First Hard Money Loan Phoenix AZ
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Receiving Your First Hard Money Loan

RECEIVING YOUR FIRST HARD MONEY LOAN

Receiving Your First Hard Money Loan Phoenix AZ

This post is especially for NEW INVESTORS. However, any investor who plans to fund a deal with a hard money loan will benefit from the information here.

A Hard Money Loan for Your First Deal

Your first deal as a real estate investor is the most important deal of your career. It’s the deal that gets your foot in the door of the real estate investing game. For most new investors, the success of that first deal is going to depend on whether or not you get a hard money loan to fund it.

“Why a Hard Money Loan for My First Deal?”

That’s a great question! Answer: Hard money loans are almost always the only type of loan that new investors can get for their first deal or two until they build some capital.

That being said about using a hard money loan for your first deal . . . I suggest that you think like a tourist when you invest.

New Investors Should Think Like Tourists

Going on vacation involves a lot of planning, and the most important part to figure out before you go on vacation is where to go. Planning your first real estate investment deal is exactly the same. Where you invest is the most important part of your planning.

The reason? Just like with your vacation, you want to make sure that you get the most bang for your buck when you invest. We’re all probably well-aware that some places are hotter for real estate investing than others because of market conditions. So, that’s the first part of it.

The other part may not be as familiar to you . . . Did you know that some states are better than others for getting approved for a hard money loan?

It’s true. Most of it has to do with lending and real estate laws that differ from state to state. Some of these laws are hostile to the real estate investing and hard money lending processes — stuff we can blame our congressmen/women for.

So even if you find a really killer deal in some states, you could end up flat on your face with no way to get the funding you need, unless you know the best places to invest in real estate when it comes to hard money loan approval.

The Best Places to Invest in Real Estate

Simply put, the best places for new investors to invest are states where the markets are good and where you have the best chances to get approved for your hard money loan.
Here are those states: Arizona, Colorado, Georgia, Nevada, North Carolina, Oregon, Texas, Virginia, and Washington. These are the best states to invest in for new investors. Stick to these ones, and you can count on hot markets, good deals, and easy hard money loan approval.

What Other Hard Money Lenders “Forget” to Tell You

  • I could get a lot of flak from other hard money lenders out there for telling you this, but I don’t care.
  • I’m sick and tired of hearing about hard money lenders who take advantage of investors (especially new investors) by feeding them mis-information about what it takes to close a deal.
  • Sometimes it’s even worse when they give no information at all.
  • All they want is to get the investor’s money, so they conveniently “forget” to inform them of some of the most critical realities of real estate investing.
  • I’m talking specifically about the starting money that investors need to make a deal, expenses not covered by the loans used to purchase the property.
  • (Yes, in addition to these loans, you need other monies to fund your deal. If this comes as a surprise to you, then you are exactly why were writing this post.)

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Three Types of 100% Financing

Chances are that you didn’t even know there are 3 different kinds of 100% financing for real estate investment deals.

Don’t feel bad. It’s not your fault. The reason for the obscurity on this topic is because nobody ever talks about it. So I’m going to spell it out here once and for all.

As you probably do know, the majority of hard money loans cover somewhere between 60% and 75% of the property value or after repair value of the property. If the deal you found is a slammin’ one — such as the case with my caller the other day — a hard money lender might choose to finance the deal 100%. This leads into the first type of 100% financing.

Type #1 – This first type of 100% financing covers 100% of the purchase price of the property. But that’s it. You still have to pay for repair costs, closing costs, earnest money and all those other fees on your own. This type is what most lenders mean when they use the phrase “100% financing.”

Type #2 – Very rarely, and only if your deal is a really really slammin’ one, a hard money lender may finance repair costs and the closing costs in addition to the purchase price of the property. The investor must still bring what I call “starting money” (earnest money, evaluation fees, inspection fees, etc.) to the table.

Type #3 – The Holy Grail of investment financing! True 100% financing for everything — purchase price, rehab/repair costs, closing costs and all those starting money items. This financing option is the only way for investors to get into deals without any money of their own whatsoever, and practically nobody offers it. (But we do.)

With that wind-up you’re probably dying to hear about how we accomplish true 100% financing for our clients. I’m going to explain that in just a minute, but first I have something important to say about starting money.

Turn $1,000 Dollars into $10,000

Here’s a table that itemizes those things for you:

Common Starting Money Items
Item Cost
Earnest Money $500 – $1,000
Evaluation $600
Inspection $500
Total: $1,600 – $2,100

Starting money. This is the term that I use for earnest money, evaluation costs, inspection fees and other expenses that investors almost always have to fund for themselves.

These expenses are the most commonly overlooked aspects of every real estate investment deal.

It is possible to get a true 100% financing option to cover these expenses. This is especially helpful for new investors who don’t have their own starting money.

However, the majority of investors out there will have to cover these costs themselves on most deals.

If you’re making a lot of offers or planning to make a lot of offers, doing some simple math in your head should tell you that these costs can add up fast. For many investors, lack of start up money is the number one thing holding them back from making more offers.  To get the money you need, faster than the competition, consider a hard money loan from Brad Loans.

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How To Purchase Rentals With No Money Down Hard Money Loans
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Purchase Rentals In Phoenix, AZ With No Money Down Using Hard Money Refinancing

PURCHASE RENTALS IN PHOENIX, AZ WITH NO MONEY DOWN USING HARD MONEY REFINANCING

How To Purchase Rentals With No Money Down Hard Money Loans

Real estate is often accomplished by investors through a short term loan. A short term loan is the solution to purchasing rental properties and also fix and flip homes. It is also used in purchasing homes as rental properties until a long term financing can be found.

The use of hard money will more than likely be expensive, even more than what traditional financing would be, and it is best to have some short term financing to use. However, many investors find a hard loan as a terrific option, yet, this is going to cover short term financing options as well. You can also use a conventional refinance loan for purchasing rental properties without having to have the money to put anything down.

Hard money loans, what are they?

A hard money loan is something that helps an investor to purchase rental properties for a short term, usually six months or less. They will have different terms than the traditional bank loans do. Those who lend out hard money loans are going to have a much higher interest rate, with an interest rate of twelve to sixteen percent, plus points for the money they loan you. For those who do not understand what points are, it is a percentage of the amount of the original loan and accumulates other charges and can accumulate as much as four points rather quickly.

Is there any certain reasons that an investor would use hard money to purchase property?

Investor will choose to go through an investment to purchase a rental property with a hard money loan because the lender may be willing to cover the entire amount of the loan plus what it is going to cost them for the repairs, referred to as the after repair value (ARV). These lenders are willing to loan the investor as much as sixty-five to seventy percent of the ARV, you need to remember that that is not the purchase price, it is the price the house will be worth after it has been flipped.

So, how does the lender make their money off of a hard money deal?

For instance, an investor purchases a home for $60,000 and the after repair value is $130,000, the lender is going to loan the investor up to seventy percent of the after repair value of the property. This means that the lender is going to loan the investor up to $91,000 on the property based on the after repair value. Estimates of all repairs have to have bids and receipts and the lender will cover those costs as part of the hard money loan.

The lender is going to be paying twenty-five percent of the repairs at the closing and the rest of the payments will then be in twenty-five percent increments as each repair is finished. The loan principle, interest, and points will be paid in one lump sum after the house has been sold. The lender isn’t going to charge any interest until after the house is sold, however, the lender in this case is going to charge a fifteen percent interest along with the four points, which they are willing to reduce the points paid if you do some deals with them.

When dealing with a hard money lender the cost to you can add up quickly. The interest alone for this deal is going to cost you $6m825 plus the points is already $3,640 for a six month loan. You may find a hard money lender that is will to lower the charges on interest and points, of course these are going to want you to share the profits evenly with them.

Personally, I never use a hard money loan, but the options are there for those who have no other options.

How do you locate hard money lenders?

Hard money lenders are out there, many of them will only do business in certain states, while others may do business across the nation. Begin by searching on the internet for a hard money lender in the same state you live in, using any of the search engines. Here is a few hard money lenders in case you would like to talk with more than one: Located in Phoenix, AZ is the Brad Loans, and there are the Private Money VS. Hard Money for Investment Properties.

What is Private Money VS. Hard Money for Invest properties?

Private money is when you are getting the money from someone, not from a mortgage co. Or a bank, or any other type of lender but from a person. Sometimes a regular person will loan the money needed for real estate property, especially right now, with interest rates as low as they are. Right now the average interest rate on a CD is under one percent. No one can keep up with the ongoing inflation with the interest so low. While the wealthy is now looking for higher yield investments while they are still secure others are buying up properties. By loaning out to investors could be the perfect thing for them at this time, increasing their investment returns and helping investors out, this is called Private Money Loans.

How would you go about locating Private Money investors?

The hardest issue with private money is locating someone that will loan you the money. If you go online you can find many websites that say that are private lenders and that you can borrow money for a fee. From personal experience, this is not the way to go about it as you don’t never know if they are just going to take your money and give you the name of hard money lender or what. Private money lenders are more cautious than that and they only want to do business with people they know they can trust.

The best private money loans comes from someone you know and can trust. For instance, My private money loans have been coming from my sister, she uses her profit returns towards the increase of her son’s college fund. And she will lend me the money for an eight percent rate which is reasonable, without any points added in there. She knows that I know what I am doing and that I am going to be honest with her. This is a lot cheaper than financing with hard money.

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Can I purchase rental property with hard money without having any money to put down?

You can refinance a hard money loan if you used a hard money loan to also finance any repairs, using the Fannie guidelines, of course it has to be with a seasoning period. There is not cash out refinance allowed it you do not have a seasoning period. This gives the home a higher loan amount than its original cost since the repairs have also been financed. It means that you will be able to get the long term loan to take the place of a hard money loan and don’t have to wait around as you would if it was a hard money loan.

For instance, you purchase a rental property for $100,000 using a hard money loan of one-hundred percent of the purchase price with another $35,000 financed for repairs, making it a total of $135,000 in loans then you refinance after the home has been repaired using a Fannie loan making the loan amount go up to seventy-five percent of the new appraised value. The if the new value is appraised at $185,000 the amount that you could refinance would be $135,000 but according to the Fannie guidelines you cannot cash out a refinance. However, the original amount loaned to you by the hard money lender could be refinanced.

Going this route tends to be more expensive because it has a higher interest rate, then there are the added points, and the costs of the refinancing with Fannie Mae, but keeping in mind that you have just purchased a long term rent property, repaired it, and had almost no out of pocket expenses.

The use of traditional banking for financing short term loan with an investment property:

Investors can find banks that are willing to give them a short term loan, although they can be hard to locate and usually the investor will already have a good standing with the bank. Our short term loans are done through a portfolio lender to finance our short term investments. The portfolio lender will have an interest rate of about 5.25 percent, with 1.5 percent on the loan. This means we can get up to a seventy-five percent loan on the original value of the purchase price, but we can complete the loan process in a couple of weeks. There were times in the past that a bank would finance these loans at a hundred percent of the value and the funds would be ready on the same day, but, not any longer.

Lines of credit are offer by traditional banks, however, they are not referred to as short term loans. Those banks will usually want something such as real estate or other value property for collateral before giving anyone a line of credit. So, if you have a home and you have equity in it you should be able to get a line of credit. The bank I deal with charges a five percent interest rate and allow up to ninety percent towards the value of my residence, and I can get up to eighty percent on investment properties.

Give us a call today if you are interested in hard money loans for fix and flip, finishing construction, refinancing your mortgage, buying land, or need loans for other investment opportunities but have bad or no credit. Give Brad Loans a call today at (602) 999-9499.

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Need a Private Money Loan Anywhere in Arizona?

Brad Loans offers private money loans in many areas of Arizona including Phoenix, Mesa, Tempe, Chandler, Gilbert, Cave Creek, and Flagstaff.

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