Despite higher interest rates and shorter repayment terms, investors still highly favor hard-money loans as a means of securing funding for real estate projects.
It is an especially popular financing solution among people looking to revamp fixer-uppers. So if you like rehabilitation projects, stick around till the end.
In this article, we’ll cover the top 3 reasons to use a hard money loan when flipping a house. Do you need compelling reasons to opt for a hard-money loan?
We’ll cover the potential perks and highlight the various requirements to secure this financial option so you can make better decisions. Let’s get started:
Top 3 Reasons to Use Hard Money Loan for Flipping Homes
Find out why hard-money loans are a great way to buy and sell houses. Find out how fast decisions, flexible terms, and property-based loans can help you make more money with your real estate investments.
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#1. Rapid Approval Time
If you’re looking to seize time-sensitive opportunities, opt for a hard-money loan. One of the biggest draws to hard-money loans is their lightning-fast approval process.
In comparison to traditional loans that can take several weeks or even months for approval, hard money lenders understand the urgency of flipping projects.
For example, if you find a property you like on the market, you could secure funds from a private lender in a fraction of the time.
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#2. Flexibility on Terms
Hard-money lenders often offer more flexibility on loan terms compared to traditional financial institutions.
They are typically more focused on the value of the property in addition to the borrower’s credit history, giving individuals with varying circumstances a chance at securing financing.
This flexibility also allows investors with unconventional projects access funding. For example, banks might be unwilling to approve a loan for a dilapidated building, but private investors could make exceptions given the right circumstances.
Thus, it empowers investors to negotiate terms that better suit their needs and objectives. Moreover, hard money lenders in Maryland can guide you on the possible ROI when flipping homes, guaranteeing your success.
Related: How To Apply for Low Interest Home Loan
#3. Competitive Advantage
Get an edge over the competition by opting for a hard-money loan. As we highlighted earlier, this financing option often guarantees speedy approval. As a result, investors can secure funding more quickly and pay for promising properties.
A speedy approval allows you to plan your projects better, from purchase to renovation and sale. For example, you can leverage speedy approvals to snag, upgrade, and resell spontaneous deals.
On the other hand, a conventional loan with an extended approval time could make you lose windows of opportunity.
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Hard Money Loan Application Requirements
Hard-money loans are best for people who want to flip homes. Look into important benefits like getting money quickly, having easy credit requirements, and being able to use the value of your property to make the most of your real estate gains.
#1. Property Value and Equity
Look for properties with promising value and equity. While conventional lenders prioritize your creditworthiness, hard-money lenders primarily focus on the value of the property. Thus, the more valuable your collateral, the better your chances of securing approval.
For instance, although banks might be hesitant to finance a dilapidated house, a private lender can make an exception if it shows promise for generating a significant income at a high resale value.
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#2. Down Payment
Unlike traditional loans that may require a large down payment, hard money lenders typically expect a substantial down payment upfront.
This demonstrates your commitment to the project and reduces the lender’s risk. The exact percentage varies depending on the lender and the specifics of the deal but be prepared to invest a significant amount upfront.
#3. Exit Strategy
Prove your trustworthiness by demonstrating your plans to repay your loan on time. Hard money lenders always prefer to bank on a sure thing, and investors with a solid exit strategy are more likely to get approval.
After all, nobody wants to struggle to collect their payments, even with the insurance of collateral. As a result, it would be best to highlight how you plan to turn a profit.
Whether you plan to sell the property for a profit or refinance with a traditional mortgage, you need to outline your plans for your newly flipped house.
Read: How To Avail a Loan Against Securities?
#4. Experience and Track Record
While hard-money lenders may be more lenient with credit scores and financial history, they still value experience in real estate investing.
They may look at your track record of successfully completing flipping projects or your experience in property management to gauge your ability to handle the project effectively.
#5. Documentation and Paperwork
Like any loan application, hard-money lenders will require documentation to support your request.
Unlike banks and traditional backers, private lenders have a more streamlined approach to paperwork. However, in addition to a few personal financial documents, you will have to gather documents with details on the property you plan to invest in and a detailed outline of your renovation plans.
Also, some lenders might request an updated bank statement to assess your financial health. The sooner you present the appropriate documents, the quicker your application process will be.
Related: 5 Tips To Find The Best Debt Consolidation Loan
Conclusion
In conclusion, investors who plan to indulge in house flipping projects can enjoy several benefits by opting for a hard money loan. The top three are: capitalizing on a rapid approval time.
Speedy funding allows you to seize time-sensitive opportunities, which can also give you a head start in the market. Besides outracing your competitors, you can also enjoy more flexibility in negotiating terms that suit your needs.
However, to secure these advantages, you need to meet specific requirements. Selecting properties with an attractive value as collateral and making a considerable down payment.
With those necessities in the bag, lenders may also account for your experience, review your exit strategy, and ask for some documentation.
Besides these hoops, hard money loans guarantee investors fast approval rates, more negotiation room, and a better advantage over their competitors.
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