Interest Rates On Hard Money?

Hard money lender’s interest rates depend on the lender. Common hard money interest rates can be as low as 8% interest all the way up to 21% interest with the average hard money interest rate falling in at 14%, and terms can last for 6 months to a few years. Some lending companies will defer your interest payments, being that most lenders don’t want interest payments during the rehab phase.

Default Interest Rates On Hard Money

When borrower’s default on hard money loans they might be charged a higher “Default Rate”. Default rates are controlled by law and have a cap, defaulting on a hard money loan could leave you stuck paying extremely high percentages upwards of 25%–29%. Some private money lenders will collect a pre-payment penalty and some offer loans with no pre-payment penalties.

Credit Scores Effect On Interest Rates

Credit scores of the borrower weigh heavily on interest rates, especially with hard money lenders. The borrower’s experience and ownership of property might also have an effect on the given interest rate by the lender.

Hard Money Points

Not only will there be interest but hard money lenders also charge loan fees on your hard money loan. Typically, hard money lenders will charge you 2 – 10 points, or 2 – 10% of the total amount of the loan, this is referred to as your loan fee. It pretty common for a commercial hard money loans to start at four points, and go as high as 10 full points. 1 point is equal to 1% of the mortgage loan. Therefore, charging one point on $100,000 loan = $1,000 in loan fees. If you’re getting charged the 10 points, you are going to need to come up with $10,000 for the loan fee.

Loan Fees Associated

For investors that are used to traditional bank loans only having 1% or lower loan fees, this higher percentage can be a “shocker”. Usually this loan fee is set in stone and isn’t effected by experience, credit or the property’s characteristics.

Another factor that should be taken into consideration is the amount of time it takes for the lender to fund the loan. If you are new to their company it might take a little longer than someone else that has already had a loan funded previously. Taking this into account, it’s a smart decision to find a hard money lender that you can build a rapport with for future lending purposes. You want to be able to get your loan funded as fast as possible when trying to take advantages of great investment properties.

Loan Terms & ARV (After Repair Value) Amounts

You want to find a hard money lender with terms that suit your needs. Here are the basic terms hard money lenders offer. Most lenders will only loan you 70% ARV (After Repair Value) of your home. The means that the lender is able to loan you 70% of what your repaired home is worth. For example: Let’s say you have a home worth $50,000 in its existing condition and its needs $10,000 worth of repairs, so after repairs, the new market value is worth $100,000. In this case the hard money lender would only be able to loan you $70,000 dollars.

**Important: All borrowers of hard money should use a real estate attorney to make sure your property is not sold or given away by you going into default or having late payments. Most of these procedures could be stopped by a credible real estate attorney and would require a court judgment.

How The Location & Condition Of Your Property Effects Loan Points & Interest Rates

Locations Effect On Points

The location of the property your buying has an effect on the amount of points you will be charged for loan fees. A great location will keep you in the 2-6 points range, an average location will cost you 3-8 point and a bad or remote location will cost you 5-12 points.

Location’s Effect On Interest Rates

The location of the property your buying also has an effect on the interest rate you will be charged for loan fees. A great location will keep you in the 9-12% interest range, an average location will cost you 10-13% interest and a bad or remote location will cost you 11-14% interest on top of your financed loan amount.

Condition Of Property’s Effect On Points

Depending on the condition of your property, you may have to pay additional loan fees. A property in bad condition will cost you an additional 1 to 3 points. A property in average condition won’t cost you any additional but a property in great condition could actually save you 1 to 2 points off of your loan fee.

Condition Of The Property’s Effect On Interest Rates

Depending on the condition of your property, you may have to pay additional loan fees. A property in bad condition will cost you an additional 1 to 3% interest. A property in average condition won’t cost you any additional but a property in great condition could actually save you .5 to 1% off of your interest rate.

Credit Scores Impact On Interest Rates & Points On Hard Money Loans

Credit’s Effect On Points

Credit scores impact the amount of points you will be charged in additional loan fees. Bad credit will raise your loan 1 to 3 points. Average credit will not affect your loan and great credit could possibly get you a discount of .5 to 1 point.

Credit’s Effect On Interest Rates

Credit scores also impact the amount of additional interest you will be charged on top of your loan fees. Bad credit will raise your rate 1 to 3%. Average credit will not affect your loan and great credit may get you a discount of .5 to 1%.

Conclusion:

It’s safe to say that if you are looking for a hard money loan, make sure that you have good credit, your property is in a good location/condition and that you are able to make payments on time to avoid the costly fees associated with hard money lending/financing.

Looking for a mortgage, but having trouble due to your credit score?

Here are some things you can do to get your credit score headed in the upward direction so you can secure the loan you need to live in a home that is desirable for you and your family. Your credit score is viewed by lenders as a direct indication of your willingness and ability to pay back off loans and debt. Another way to look at it is the level of probability that you end up defaulting on the in the first 90 days. It may help you to view your credit score like more of a grade you would receive in school instead of an arbitrary number associated with you. If you have high grades you advance to better classes and receive preferred placement in the academic world and it’s no different in the financial realm. If you grade out high you will advance to better neighborhoods and receive preferred consideration when you make offers on properties or vie for loans, etc.  Keeping tabs on your score as you would you GPA will majorly increase the amount of attention and effort you give to improving your score (grade) and your overall life situation. If you are constantly aware of you credit standing, you will be less likely to make moves that could be potentially harmful to your credit because you eliminate the ‘out of site, out of mind’ factor that has been the downfall of many. The difference between your GPA (grade point average) and your credit score is the fact that you never graduate with credit and you always need to keep your score as high as possible. It’s a lifetime of performing your due diligence to get ahead.

If you fail in school you are given a chance to redeem yourself, whether you are re-taking a test or doing an entire grade over. Credit is the same way. You can always take action to raise your credit score, the amount of work and time it will take to reach redemption depends on how deep of a hole you have dug yourself into. The best place to start rebuilding your score is to look at any outstanding debts and start the process of getting them taken care of as soon as possible. You will see a significant boost to your score after amending any outstanding debts.

After attending to your outstanding debts you need to make sure that you NEVER fall back into the old habits, practices and mind sets that got you into the debt you just eliminated. That cannot be stressed enough; fixing your credit score is more than just a specified mission to improve one area of your life. In effect, improving your credit score comes along with making changes to your overall lifestyle. Approaching this as a wholesome change that will be permanent will put you on the path to reaching the state of mind where the changes you are making become second nature instead of necessitating conscious attention like they will initially.  Make your payments on time, or better yet, early WITHOUT EXCEPTION. This will assure your consistency will always be reflected on your credit report and your score will continually increase. This goes for any payment, small or large, and should become your new status quo for the long haul.

Be sure to not try to do too much at one time in order to remedy your credit score. Just like in school, it will be much easier to attain high scores and be efficient in your studies if you take on a course load that agrees with your lifestyle and schedule. If you take on too many classes during one term, your scores are going to suffer across the board because your attention is being exponentially divided and partitioned. The same thing goes for your credit score. If you try to take on too many remediation steps at once, you will ultimately fall short of your goals or significantly delay yourself from arriving at your desired destination.  Focusing on a few areas at a time until they suit the credit situation you are trying to create for yourself. Doing this ensures you will give full focus to the areas you have chosen to for your current efforts in raising your credit score. Seeing each area through to a satisfactory level will leave you looking at a very complete picture once you have concluded your efforts to rebuild your credit. Think of it like building a structure…..you can’t focus on the roof until the foundation and walls are planned for and built. It would make no sense to build your roof before the rest of the house is done. Start your work at the foundation of your credit score. You will build a sturdy, beautiful and practical structure in the end.

Hard Money Loan Uses Include:

1. Ultra Fast Funding: Sometimes the perfect real estate opportunity comes up at the drop of a dime and you don’t have time to wait for a bank loan. When bidding on a property you are going to need either cash or hard money lending in place of that cash. You don’t want to miss a profitable opportunity when it comes.
2. Fix & Flip or Rehab Properties: Banks usually wont fund fix and flip or rehab properties because they pose too much risk. Often the most profitable real estate opportunities require repairs, cosmetic rehab and past due maintenance. The only way to make these costly repairs quickly and easily is to either have the cash or be funded by a hard money or private money lender.
3. No Credit or Bad Credit: Do you have no credit or bad credit and want a traditional bank loan? Good luck! Banks don’t want to lend you money unless you have some already to cover the loan just in case you can’t pay it back. Now, if you had the money you would of already funded the project yourself right? Of course you would but you don’t and that why hard money lenders are your saving grace! The don’t care about credit as long as you have equity or collateral for the loan. Even people with a bankruptcy or foreclosure on their credit history can still get hard money loans.
4. Construction Loans: Whether you’re a home owner or contractor and planning on building your dream home, building a four plex, borrowing to finish and unfinished home, remodeling your existing home or building a 5 spec home, hard money loans can help at any stage of construction to help you get these projects completed when bank won’t fund your construction loan.
5. Unable to Get Traditional Bank Loans: Traditional lenders have very tough criteria to meet in order to receive a loan. Traditional banks usually won’t offer loans for: People with bad or no credit, fix and flip opportunities, finishing or building new construction or buying or purchasing land. Hard money lenders will fund all of these endeavors and more.
6. Land Loans: There are many different forms of land including Raw Land, Developed Land and more. From a single lot of land to a subdivision. If your land is surrounded by commercial buildings or other houses you will find a hard money lender much easier. This will give the Land lender good insight about the value of the property.

Ask the lender these 13 questions:

(1). Is there a minimum credit score to get the Hard Money Loan?

Our answer to this is…‘No’, our policy requires no minimum credit score in order to qualify for any direct loan we offer. In addition to that, we do have a minimum requirement for your credit score when dealing with partner loans, which is a low of only 575.

Their answer to this is…‘Yes’,in general, all other lenders will have a credit score minimum requirement for (any and all of) the loans they offer. The minimum credit score being at or above 700.

(2). Is there a minimum down payment?

Our answer to this is… ‘No’, There is no minimum down payment to make with all of our direct loans. And through partner loans the minimum down payment is a low down payment of only $7,000 to $10,000.

Their answer to this is…‘Yes’, other lenders ask a minimum down payment of 20-25% based on a loan of $100,000 (this is extremely high).

(3). Is there any previous experience in residential rehab and re-sale needed?

Our answer to this is…‘No’,Experience is not required for any of our loans.

Their answer to this is…‘Yes’,other lenders generally will require the experience of two previous Fix & Flips.

(4). Is there any type of resources that you provide to help me in succeeding?

Our answer to this is…‘No’, Our business wants to see you succeed the first time around with us, and that is why we will be providing you with  everything needed to see that you are profitable your first time out.

Their answer to this is…‘Yes’,other lenders aren’t concerned whether you succeed or not, in fact, some would preferred to foreclose on you.

(5). Are you the type that will double check contractors bids to make sure they are correct?

Our answer to this is…‘Yes’, for us to be absolutely certain that you are getting the best prices to increase your profits.

Their answer to this is…‘No’, other lenders couldn’t care less how much repairs are going to cost you, nor do they care if you make any profits.

(6).   Are you going to oversee any repair work to be done, and see to it that everything is finished right – ensuring the home is going to sell?

Our answer to this is…‘Yes’, we make sure of this for you because our goal is to help minimize  the term of your loan and also to help to increase your profits.

Their answer to this is…‘No’, other lenders prefer to drag the loan term out as long as possible, as they receive more interest that way.

(7).Will you be doing a detailed profit estimate to know whether I will actually make money off of the deal?

Our answer to this is…‘Yes’, we certainly will, we do this to be sure of what your getting into, and this is because we want your business again someday.

Their answer to this is…‘No’, other lenders take for granted that you know what you were getting into and leave it at that.                                                                                                                                 

(8). Will I be receiving an itemized list from you showing all my closing costs?

Our answer to this is…‘Yes’, All closing costs will be given in detail from the get go.

Their answer to this is…‘No’, other lenders try not to bring up the closing costs until its closing time.

(9). If there are any third party costs will I also get a detailed list of those?

Our answer to this is…‘Yes’, any third party costs will be given to you in detail stating what each specific cost is for, including the agent fees, title gees, transfer taxes, and utilities, as well as any other costs that sometimes get overlooked.

Their answer to this is…‘No’, other lenders tend to overlook this altogether, which leaves you with an expressive surprise later on.

(10). Are there any penalties for pr-payments?

Our answer to this is…‘No’, so when you rehab and re-sale a property in, let’s say three months – you only pay interest for those three months.

Their answer to this is…‘Yes’, other lenders are charging a flat rate on interest, for instance, they charge a flat rate of 6 – 12 months interest regardless of how early you pay the loan off.

(11). Is the loan based on the after repair value (ARV)?

Our answer to this is…‘Yes’, our loans cover up to 65% of the after repair value, that means that all of your costs, such as the purchase price, the interest on the 65%, and any repair costs, which means that if everything can be done for the 65% or under we can loan you 100% on the financing needed, and there would be no out of the pocket expense for you.

Their answer to this is… ‘No’, other lenders usually will only loan out between 60 and 80% of the price to purchase before any repairs.

(12). How about my points, interest, and repair costs, do you fund those?

Our answer to this is… ‘Yes’, we work to help you to find great deals, and anytime you find it we will fund all of your expenses for you.

Their answer to this is… ‘No’, other lenders are not willing to do this as they are in it to make money when you don’t succeed.

(13).  Do I have to give you any money before the repairs are finished and the home is sold?

Our answer to this is…‘No’, we want to see you make profits and that is what we let you concentrate on, so no, you do not pay us anything before hand.

Their answer to this is… ‘Yes’, other lenders want you to make payments on the interest while you’re still repairing the home to sell.

Option 3: You need equity in your Home

If you don’t have equity, you loan is seen as very risky and reduces their willingness to give you a refinanced mortgage.

Also, you can’t take cash out of a FHA mortgage that refinanced using the streamlined program resulting in lowering the borrowers interest and monthly principle.

Also, depending on how conservative to bank is, the more amount of equity they are going to want you to have before giving you a loan. Some loan servicers want you to have at least 25-30% equity in your home before they will consider refinancing it. Your loan to value ration needs to be at least 70%.

In monetary terms, a loan to value ratio of 75% means that the loan lender is willing to lend you $75,000 on a home worth $100,000.

Mid-level loan lenders will do mortgage loans for 80-90% loan to value ratio, meaning they would loan you 80-90 thousand dollars on a property worth $100,000.

Aggressive loan lenders will offer a 95% or higher loan-to-value ratio.

Don’t Expect the Lowest Interest Rates

I’m sure you have seen the advertisement online and TV commercials that state that home owners can get interest rates as low as 3-4% but the chances of getting a rate like that with bad credit is out the window. As of July 29, according to BankRate.com, the avg. 30 yr fixed-rate mortgage loan was 4.03%. The chances of getting interest rates below 4% have passed and gone.

Rates have been slowly rising in the recent week, somewhat due to the Federal Reserve not buying back bonds anymore something that had been keeping interest rates low for a long time.

Although, some people can still get these rates if they have perfect credit but a borrower with bad credit will not qualify for these awesome interest loans.

So if your credit score is bad, you can refinance but not at the lowest loan rates in the marketplace.

How much money will you have to pay?

Depending on how bad or poor your credit is, (What’s Considered Bad Credit) you may not be able to get the low interest rate that you had hoped for. A loan borrower with a credit score of 630 would expect to pay rates about 1.5% higher than a loan borrower with a perfect credit score based on the same loan, assuming the loan servicer will even approve someone with bad credit in the first place.

A better but still scarred credit score of around 670 or so may mean that you will only have to pay about 1/2% more than a loan borrower with a “perfect credit score” of 760 or higher. Keep in mind, that other variables, like the amount of equity you have in your home, will affect your loan interest rate as well.

Option 4: Make sure your loan application is pristine if you have bad credit

We have discovered that bad credit by itself won’t keep you from getting your home refinanced but if the rest of your loan application is all over the place, you might not be able to get it.

Try to cover up the credit situation by making the rest of your application as perfect as possible, especially if you are looking at a conventional mortgage loan.

Get all you paper work together (for example: your paystubs, tax statements for the last 2 years and w-2’s) Also, it looks really good on you if you have a long standing history at the company you work for. Let them know how long you have been at your current job and if you have a raise coming up or recently got one. That show the loan servicer that you have stability and that is exactly what they are looking for. Make sure you get documentation to prove the recent raise or future one if you can.

Lastly, get all your bank record and savings account statements together. Having a cash backer is a great way to look attractive to the loan lender.

In conclusion, if your application looks nicely put together and provide records that prove your stability, the likeliness of you getting your loan seems a little more feasible – even if you have poor, weak or bad credit.