Texas Hard Money Lender

Tuesday, February 28, 2023

Buying a home with bad Credit? How do you Fix Your Credit Score?

By: Dennis Dahlberg

You want that Arizona Home Mortgage to purchase your dream home, but your credit score is low. Are you looking for a loan for borrowers with bad credit or poor credit? Your credit score indicates what the industry calls your willingness and ability to pay the debt. It's a probability ranking score on the probability of you defaulting on an Arizona Home Mortgage payment obligation in the next 90 days. Some think it is a credit score grade on your payment performance. The lender will examine your overall grade and see if you can pay the debt. If you have a failing credit grade (an F), the lender will assume you will fail again and not pay them back. It's an overall Grade Point Average on how you passed or failed on prior loan obligations. If you got an F on an Arizona Home Mortgage in the past, your Grade Point Average would go down. Think of it as when you were in school. Every year the school would give you a Grade Point Average for the year's work. Some people got a very high-Grade Point Average (all A's) and were the smart kids in school, while others got a few D's and F's on their report cards and had a lower Grade Point Average for the year. This school of credit never ends in your life, and you want to have the highest credit score Grade Point Average possible and keep it up throughout your life. So, how do you get a high credit score Grade Point Average? You do the same thing that you did in school. That is:

1. Take the Test over again and get a better grade. How do you do this? First, you pay back the people you owe money. Those items in the collection or past due need to be paid off and settled. Your past owing mortgage grade is currently an F, but you can make it a C+ if you pay off the debt.

2. Don't get any more F's on your work. This means you pay the Mortgages back and on time. You need to take it seriously, make the payments, and don't be late. Remember when you turned work in late in school, and the teacher deducted points for the work because you were late? It's the same in the credit school; don't be late for your work. Also, what grade were you given when you did not turn in the work? You would get an F. This is the same with paying Mortgages. When you DON'T PAY, you get an F, and your overall credit score Grade Point Average goes way down. Pay your Mortgages on time, and the whole will give you the best Grade Point Average.

3. Don't take on too many classes. If you take a safe load of classes, your workload is more manageable, and you can probably get an A in every class. But if you take on too many courses, you will not be able to get all the work done for all the classes. This is the same in the credit world. Don't take on too many Mortgages, and keep the balance owed on the Mortgage to around 30% of your available balance. The lender will look at your mortgage (class load) and wonder, are you never going to get the work done? You have maxed out all of your credit cards and want another one? The more Mortgages you take on (sign up for), the higher the chance that you will fail on one of them, and possibly the Mortgage you are now trying to get is the one you will fail on.

4. Get that bad score off your report. Usually, the quickest way to get a lousy grade off your report is to dispute the score (Whine to the teacher). Tell the credit bureaus that it's not your grade or that the grader who graded the test was wrong, used the wrong pencil, or used the wrong answer sheet to grade your work. If you can get an F off your report card, your overall score and Grade Point Average will go up. This is usually the first thing you can do to get a better Grade Point Average. You do this by disputing the bad items on your credit report for each credit bureau. If they believe you and you are able to get the score off your credit report, your Grade Point Average will go up. If credit bureaus don't believe you, work on steps 1-3 above.

The good part about the credit score Grade Point Average is it is an Average. It's calculated over time; time is your friend when calculating the Grade Point Average. Your overall score is based on the current work and the work you have done in the past, but usually, it's for the last 3-5 years, and if you have an F on your credit score report card, it will drop off in a few years. So if you keep your grades up, in a couple of years, your credit score Grade Point Average will start to improve, and eventually, you will have all A's and you can qualify for the Arizona Home Loan With Bad Credit.

Equal Housing Opportunity. This is not a Good Faith Estimate and this is not a Guarantee to lend and should not be considered as such. Costs, rates, estimates and terms can only be determined after completion of a full application. Actual payments will vary based on your individual situation and current rates. APR for loans vary from 7.99 - 29.5% and is based on Credit Score, Down Payment, LTV, Income. Mortgage rates could change daily. To get more accurate and personalized results, please call 623 582 4444 to talk to one of our licensed mortgage experts. Terms and conditions of all loan programs are subject to change without notice. Level 4 Funding LLC, 22601 N 19th Ave Suite 112, Phoenix AZ 85027, 623-582-4444 NMLS 1018071 AZMB 0923961 This e-mail is for the exclusive use of the intended recipients, and may contain privileged and confidential information. If you are not an intended recipient, please notify the sender, delete the e-mail from your computer and do not copy or disclose it to anyone else. Your receipt of this message is not intended to waive any applicable privilege. Neither this e-mail nor any attachment's establish a client relationship, constitute an electronic signature or provide consent to contract electronically, unless expressly so stated by Dennis Dahlberg RI/CEO, Level 4 Funding LLC, in the body of this e-mail or an attachment. To the extent this message includes any tax or legal advice this message is not intended or written by the sender to be used, and cannot be used, for legal or tax purposes or advice.

About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

How to Buy a House With Bad Credit

It's challenging to buy a house with bad credit. Of course, it helps to have a down payment.

Buying a house with bad credit in Arizona — or, more accurately, a low credit score — can be challenging, but it's not impossible.

Purchasing a home requires having money for a down payment, a solid history of paying your bills over at least the past year or two and a steady income. You'll also need to meet the lender's minimum credit score requirements. While higher credit scores earn more favorable loan terms, it's still possible to buy a home with bad credit in Arizona.

What is the lowest credit score to buy a house?

Credit scores from 500 to 579: Theoretically, you can qualify for a mortgage with a credit score as low as 500, but you'll be limited to a loan insured by the Federal Housing Administration. With a credit score from 500 to 579, you'll need a down payment of at least 10% for an FHA loan. In addition, the lender will want you to pay off any outstanding collections and judgments. For home loans for borrowers in Arizona with bad credit or poor credit, Apple Wood Funding would be an excellent source to call.

Credit scores from 580 to 619: You might qualify for an FHA loan with a down payment as low as 3.5%. Or, if you are eligible, you could qualify for a VA loan — a mortgage guaranteed by the Department of Veterans Affairs.

Credit scores of 620 to 699: Your mortgage opportunities increase. You may qualify for a conventional loan, which isn't backed by a government agency like the FHA or VA, with a minimum credit score of 620.

Credit scores of 700 and up Lenders are more willing to extend credit when you have a credit score from 700 to 739, and a score of 740 or higher will yield the lowest interest rates.

Knowing and improving your credit

As a potential homebuyer, it's important to reduce debt, accumulate as much cash as possible, and review your credit history. Knowing your creditworthiness is essential in buying a home with bad credit. To find out, examine your credit report and check your credit score.

The smart home for your credit

You can find your credit report in various places, including personal finance websites like Credit Karma, the financial institution where you bank, and the government-mandated website annualcreditreport.com.

Check your reports for errors. Look for incorrect accounts or anything else that doesn't accurately reflect your actual credit history. You can dispute mistakes or inaccuracies with the credit bureaus or the creditor reporting the information if you find errors or inaccuracies.

Clean up your credit history. For example, making on-time payments may help your credit score. And a better credit score can lift your chances of getting a more affordable home loan.

Your free credit reports won't include your credit scores. To see scores for mortgages, you can purchase a full report from myFICO.com or Credit Karma. The most economical approach is to sign up, download the first month's information, then cancel the service before the next billing cycle.

Saturday, February 25, 2023

Do you have bad credit or poor credit and want to buy a home?

Buying a house has become synonymous with "the American dream."

However, far too many prospective buyers have found that owning a home has many prerequisites. In addition to having enough money for a downpayment, one hurdle has proven problematic for many to overcome: learning how to buy a house with bad credit Arizona. Fortunately, a low credit score won't prevent a borrower from buying a home. While options may be more limited, buying a house with bad credit is possible if you know where to look and the appropriate steps.

What Do Mortgage Lenders Consider A Bad Credit Score?

Contrary to what many believe, today's mortgage lenders do not establish a good or bad credit score benchmark. Moreover, most mortgage lenders neglect to require a minimum credit score in return for their services. Instead, the quality of a credit score is entirely dependent on the cumulative data provided by three main credit bureaus: TransUnion, Equifax, and Experian.

Borrowers' credit reports for a Bad Credit Mortgage in Arizona largely depend on the information generated by these three credit bureaus. However, instead of relying on three independent reporting agencies for their knowledge, mortgage lenders will generally look to the cumulative FICO scores to determine how creditworthy a borrower is. A FICO Score is a three-digit number based on the information in the previously mentioned credit reports and indicates how likely a borrower is to repay their loan.

There are five primary credit score categories prospective homebuyers may fall under (according to FICO):

Poor: Less than 580
Fair: 580 – 669
Good: 670 – 739
Very Good: 740 – 799
Exceptional: 800 or more

According to the latest FICO scores, anything less than 670 is bad—or subprime. It should be noted, however, that mortgage lenders will consider more than a borrower's FICO Score. In particular, lenders will also consider the following:

The borrower's down payment
The amount of debt the borrower has
How much income does the borrower make
Whether or not the borrower has any debts in collections

Anyone interested in learning how to buy a house with Mortgage Loans for bad credit must first look into what today's lenders view as acceptable; only then will borrowers be able to take the next step..

Wednesday, February 22, 2023

What Are Arizona Private Money Loans

The average real estate investor relies on a steady flow of private money to supplement their respective deals, often in the form of a private money loan. But where can one find this endless stream of money? Not only are institutional loans lengthy and cumbersome, but they can also impede the progress of a residential redeveloper.

But the big question investors have is understanding how to find an Arizona private money lenders. And what is the best way to convince private money to lend you the capital you need? And how does private lender financing work?

Conversely, real estate investment capital can allow investors to grow their businesses steadily.

The following illustrates the most critical aspects of a private lender loan, which will prepare you for the private money process and boost your credibility with potential lenders.

How to Acquire a Private Lender Loan

Private lender loans are different from traditional loans from big banks, and the process of obtaining one will also be different.

Speed of Purchase: On average, a private lender can underwrite and fund a loan in as little as 7-21 days. Banks can take up to 90 days to accomplish the same thing. The timeframe offered by an Arizona private money lender is, more or less, conducive to the deals a typical investor wants to finance.

Asset-based Lending: Private lending is primarily driven by the underlying value of the subject property. Therefore, borrowers do not need to rely on their credit to secure a loan.

Control & Profitability: Borrowers receiving private money have more control over their loans. Borrowers of private money do not need to take on equity partners.

Shorter Term Loans: Private money loans typically have a shorter loan period than conventional ones, which reduces the risk of accruing late penalties.

Guarantee of Capital: Private money allows borrowers, independent investors in particular, to expand their business. A predictable source of funds is necessary for such an endeavor.

Understanding Private Loans

At the risk of sounding too cliché, money and experience are the most important aspects a private money investor needs to exhibit. Essentially, when it comes down to it, the most successful private lenders in Arizona have an increased propensity for the real estate industry and a proven track record of identifying powerful lending opportunities. Perhaps even more importantly, however, is their tendency to remain hyper-localized, as a working knowledge of a region is critical to success. Understanding a particular market, particularly its direction, is an invaluable asset.

Your Private Lending Business: Determining Deal Viability

Private lenders are in the business of making money. Therefore, mitigating risk is a top priority. There are eight factors to consider when deciding whether or not a potential loan opportunity is viable. They are as follows:

Market Value
Borrower Credit
Borrower Equity
Additional Collateral
Lien Priority
Pricing Strategy
Exit Strategy
Due Diligence

These factors must be considered when determining whether or not to pursue a loan opportunity. Failure to mind due diligence and neglect of either of these could result in harsh consequences. Due yourself a favor and navigate the process with precision.

Proper Documentation

Proper documentation of a private money loan is of the utmost importance. However, many may be unaware that the paperwork involved in an Arizona private money loan is not all that different from a conventional loan. Accordingly, the borrower in question must sign a promissory note (a written promise to repay the loan under specific terms) and a mortgage (documentation that will be used as collateral for the lender). In addition, residential loans may require an appraisal from an outside party: a property inspection report, a geology inspection, and the borrower's financial record. An in-person examination of the property is almost always part of the decision-making process, which is why most private money lenders tend to focus on a local level.

While a hard money lender's requirements may vary, standard documents are associated with every transaction. Typical loan documents include, but are not limited to:

Letter of Intent (LOI): The LOI is a formal document acknowledging that all parties involved are on the same page. It outlines an agreement between two or more parties before the deal is finalized. While it is not legally binding, it is a preventative measure for miscommunication.

Purchase & Sale Agreement: The purchase and sale agreement, or the P&S agreement, is the document received after mutually accepting an offer, which states the final sale price and all purchase terms. Some items covered in the P&S agreement include the final sale price, earnest money details, closing date, title condition, contingencies, and more. Inclusions on the P&S contract will differ from state to state.

Preliminary Title Report: A title is a legal document listing the history of ownership of a home. After the buyer and seller have reached mutual acceptance, an attorney or title company will review the home's title to look for any problems that might prevent the home from being legally sold. The results are written up for the buyer in a preliminary title report. A description of this nature will reveal if anyone other than the seller has a legal claim to the property.

Title Insurance: Title insurance, as its name suggests, is a preventative measure that protects a buyer from anyone who challenges a property's ownership.

Proof of Funds: Proof of funds represents a buyer's intent. It is a way for borrowers to prove that they have access to sufficient funds to complete a transaction. Typically a bank statement, retirement account statement, or other legal form is acceptable.

Proof of Insurance: Proof of insurance is required for either a purchase or refinance to avoid a devastating loss.

Personal Guarantee: A personal guarantee places some skin in the game for the borrower. In other words, the borrower puts their assets (real estate, savings, etc.) on the line. Of course, this is only in cases where the borrower can't repay the loan.

Mortgage Note: A mortgage note is a promissory note secured by the mortgage loan. The loan structure is agreed upon, and the borrower signs the document.

Legal Documentation

A traditional one-page form note and two-page form deed of trust no longer address the myriad of issues in today's legal environment. Environmental problems, lending issues, and the enforceability of securities and protections must be addressed.

Legal documentation should be consistent with institutional lenders' employment, only eliminating provisions that may not be relevant or unnecessary. Additionally, special consideration must be given to a well-drafted broker's affidavit, especially in states where a licensed real estate broker must broker an otherwise unethical loan.

Summary

Private money is a great way for investors to supplement their income if they cannot fully fund a deal with the help of traditional loans or available cash funds. Private lenders are willing to give loans to investors who can present the profitability of the value they are investing in. Still, investors must be prepared to present the proper documentation to display the deal's viability. If you do your research and mind your due diligence, you will be steps away from funding your next agreement with a private money loan in Arizona.

Wednesday, February 15, 2023

Loans For Flipping Houses in Arizona

Stringent eligibility requirements, coupled with expensive purchase and renovation costs, can make it challenging to obtain loans for flipping houses.

A traditional mortgage loan is not necessarily the most practical way to finance a house flip. Continue reading to find out why obtaining a mortgage to flip a house can be tricky for some, and how creative financing might be a favorable solution to getting a loan to flip a house.

Introduction To Financing A House Flip

According to Attom Data Solutions, over 207,000 properties flipped last year, reaching an all-time high since the market crash of 2007. Steady home price increases and limited inventory have created an environment that allows successful house flippers to earn substantial profits. Although house flipping can be lucrative for some, it is nevertheless an expensive endeavor that requires careful planning.

Financing a house flip includes not only the cost of purchasing a property but also the cost of taxes, utilities, labor, and mortgage payments made throughout the renovation and re-selling timeline. Not having enough cash can be a tricky barrier to entry for beginner investors. In addition, a weak credit score, not having enough income, or not having previous experience are other common challenges that can preclude novices from obtaining loans for flipping houses. New investors, in particular, should consider these costs and potential barriers when applying for loans to flip the house.

Can I Get A Mortgage To Flip A House?

An individual can get a mortgage to flip a house, but typically only under certain circumstances. For example, an investor might choose to finance a house flip with a traditional mortgage if they have enough cash assets to use as collateral or equity in a leveraged property. Owner-occupants, or those who plan to flip a house while occupying the property for an extended time, can also qualify for certain types of mortgages. Many investors, however, will find that they do not fall under such circumstances. Furthermore, a traditional mortgage loan is not necessarily the most practical method of financing a house flip.

A traditional mortgage for flipping a house can be slow to close, making it difficult for investors to pounce on properties that move off the market quickly, such as foreclosures or short sales. In addition, banks typically evaluate a property's current value, including existing problems, before issuing a loan estimate. Those applying for a mortgage loan may find that the loan to value (LTV) ratio determined by the lender may not be sufficient to cover the cost of improvements. These impracticalities, combined with qualification barriers, make it difficult for house flippers to obtain mortgages. Luckily, a variety of flipping houses financing options have become available over the years. Read on to discover the various options available to house flippers today.

How To Get A Loan To Flip A House

The rise in alternative financing options has made it possible for a variety of investors to flip houses, without having to rely on traditional mortgage loans. Because mortgage products from conventional lending institutions often have stringent eligibility requirements, and can be impractical for an investor's desired timeline, an increasing proportion of investors have relied on alternative methods to finance a house flip. The following provides an overview of some of the most popular home loans for flipping houses today:

Hard Money Loan: Arizona Hard money loans are ideal for house flippers who have a short timeline to fix and flip a property, such as one year. These types of loans typically have lower eligibility requirements relative to traditional mortgages, as well as a faster approval timeline, in exchange for a higher interest rate.

Cash Out Refinance Loan: For an investor who has built up enough equity in an existing investment property, such as between 30 or 40 percent, the opportunity to take out a cash-out refinance loan is a real possibility. Investors take out equity from the existing property as a new loan to purchase and flip a second property.

Home Equity Line Of Credit: A home equity line of credit (HELOC) works similarly to the cash out refinance loan, but a differentiating factor is that the equity is pulled from the investor's primary residence, of which they must be an occupant. This strategy may work well for investors who opt to live in properties while they renovate them.

Private Money Loan: An Arizona private money loan is basically a fancy way of saying "borrowing money to flip a house." Every investor should understand the importance of networking, and maintaining their professional network, in order to increase their chances of encountering private money lenders. In a private money loan, the house flipper and the financial investor will work out and put their agreed-upon terms under contract.

Joint Partnership: A partnership is an excellent way for a beginner investor to get into the house-flipping business. A partner might be willing to finance a property, ready to trade their knowledge and expertise in exchange for grunt work or a little bit of both. In a joint partnership, the partners typically agree to share profits once the property is sold.

FHA Loan: The Federal Housing Administration (FHA) offers a housing loan program to back buyers who have less than perfect credit and financial status. In addition, the FHA 203K home improvement loan allows buyers to borrow enough funds to both purchase and renovate an old or distressed property. Buyers should keep in mind that FHA and 203K loans are intended for owner-occupant properties.

VA Loan: The U.S. Department of Veteran Affairs will guarantee a part of a home loan, in order to assist active-duty military, veterans and spouses in purchasing property regardless of credit or financial standing.

Summary

Loans for flipping houses in Arizona are not necessarily hard to come by, if investors know what types of loans to look for. House flipping has reached all-time highs since the market crash of 2007, partially due to favorable factors such as increasing home prices and limited inventories. However, investors are faced with the big question of how to go about financing a house flip, especially when traditional mortgage loans can be both impractical and difficult to obtain. Luckily, there is a great variety of alternative financing options available. It is up to the investor to select the option that makes the most sense for them.

Thursday, February 9, 2023

Is It About Time You Considered Using Arizona Hard Money?

One of the most common hurdles for new investors is finding hard money in Arizona to fund their deals.

While this can be a struggle at times, it is currently more accessible than ever to find the capital you are looking for. Between lines of credit, private lenders in Arizona, retirement funds, credit cards, and traditional bank loans, there are numerous options available to those that know where to look. The key is to find a funding source that works for you. Often, that source will be an Arizona hard money lender. Hard money has gotten a bad rap over the years but has proven to be a reliable way to fund deals. If you don't have a hard money outlet or have yet to use one, now may be the time to find as much information on them as possible.

An Arizona hard money lender is an individual or group of individuals that lend money on their terms. They put stock in the property and the actual financials of the borrower more than anything else. With traditional lender financing, if your credit score falls below a certain threshold, you may have trouble getting approved regardless of other factors. However, hard money lenders have their own set of criteria. For this flexibility, there are more fees and higher interest rates. Some investors will balk at those opting for lower rates that banks offer. This can work on specific properties and deals, but you need to act quickly on those that are time sensitive, and that's precisely what hard money allows you to do. Here are just a few of the benefits of using a hard money lender:

1. Speed: In today's real estate landscape, how quickly you can close is often more important than the amount you offer. Too many lenders have been burned in the past waiting for deals to complete that never do. Even if they close, a financed transaction's average length is approaching 45 days. Most sellers would take a slight discount with the assurance they can complete in a week rather than risk closing in 45 days. This speed allows you to make offers with five or seven-day closings. On borderline deals, you can bet that your offer will be the one that is accepted.

2. Volume: Instead of waiting 45 days to start working on the property, you can cut the time down to just a few weeks. Shaving a few weeks off every rehab project, you create the opportunity to close more deals over a year. Adding just one or two values to your portfolio will increase your bottom line exponentially. Often, you may be able to close two or three times the volume you locked the previous year. When the number of deals you complete starts to creep upward, so will the number of contacts you make. The people you meet are just as important as the deals themselves, if not more so. Remember, real estate is a people business. The more sales you make, the more contacts you can make. In turn, those contacts may even lead to more deals.

3. Quality: Having capital to close is only part of the benefits that coincide with hard money. With Arizona hard money in your corner, you can do whatever needs to be done for the property. Instead of cutting corners to save money, you can do the work you know needs to be done. This will help you maximize your bottom line and improve your reputation in the industry. In addition, realtors and fellow investors who see your finished products may want to work with you. Quality will also help get your property sold to end buyers much faster. Instead of hoping that an offer comes in, you will have your choice of deals.

4. Bigger Projects: Increased capital allows you to slowly build your way up to more significant projects. Instead of looking solely at single-family properties, you can start to look at multifamily and commercial deals. Furthermore, closing more deals will increase your capital and give you a significant share of more extensive sales. There is nothing wrong with sticking to condos and single-family properties, but having hard money behind you gives you to opportunity to explore other options that come your way.

Aligning yourself with a hard money lender doesn't mean you have to use them on every deal. For example, a property you want to buy and hold may be better served with a long-term interest rate of around four percent. However, most rehab projects need the efficiency that hard money brings. The ultimate goal should be to save some capital from every deal until you have committed enough to fund them yourself. You may have to make a little less per deal to increase your bottom line until you get to that point.

The biggest knocks on hard money in Arizona are the high fees and points. These accrue from the time of settlement until you can sell the property. In some cases, it can span several months. However, it is a small price to pay for what you get. In addition, the annual interest over a few months is a relatively minor factor compared to all the other expenses you will incur.

Additionally, you only pay these on deals you close. If you can't complete, you can't earn; Arizona hard money helps you close more deals. It is not for everyone on every sale, but it should be a part of your financing options.

Wednesday, January 18, 2023

A Guide For Private Money Private Vs. Hard Money

Private hard money lenders are the most important people to establish a relationship with in the real estate industry – at least if you want to run a sustainable business.

Whether you are a new real estate investor or a seasoned veteran, chances are you will want to scale your business sooner rather than later. However, volume isn't contingent on skill alone; you must bring something else to the table. There is one more piece to the puzzle that every successful real estate investor must find on their own: funding. That said, any hopes of completing more deals would depend on building relationships with those that have the necessary capital. There are exceptions of course, but private hard money lenders are a critical component to any real estate investor's arsenal.

Private hard money lenders are integral to the growth of every new investor. They essentially provide the confidence and funding required to complete more deals. Of particular importance, however, is the liquidity private hard money lenders can offer investors and their businesses. Additional funds insulate people in our industry from risk and allow them to diversify their portfolios, at least more so than without private or hard money lenders getting involved.

Both sources are undoubtedly worth their consideration, but investors are advised to be able to differentiate between the two. To help you understand the differences between private money lenders and hard money lenders, the following:

Breaking Down Private & Hard Money

Funding Deals With Private Money

In their simplest form, private money lenders are those people with the means and intent to invest capital. Consequently, anyone with a bit of extra money and an interest in what they do may be typecast into the role of a private money lender. However, it is up to you to see that the convergence between your business and their interests takes place.

It is important to note that private money lenders are just as interested in working with you, as you are interested in working with them; it is really the quintessential symbiotic relationship. Both sides stand to gain something from every deal that is struck. In return for interest on their investment, private money lenders are entirely capable of bringing speed and efficiency to every transaction. Additionally, your leverage will increase exponentially when you offer to purchase a property with private-cash funds.

It is not uncommon for the funds from a private lender to go towards the purchase price of a property and subsequent renovation costs. The lender, however, will receive both the mortgage and a promissory note at the time of closing. Think of this as their insurance policy. The investor, on the other hand, will proceed with the renovation and put the funds to work. Following the completion of the rehab and its inevitable sale, the lender will be given their principle plus interest payment, and the borrower will collect what's left.

As I mentioned before, private investors can benefit immensely from investing their own capital in the ventures of others. First and foremost, their money will work on their behalf, coming back with interest on top of the principle investment. Their investment is also protected, as they will receive the aforementioned deed and promissory note as a form of collateral. In fact, private money lenders are awarded more safety than many other investment vehicles can boast.

At the cost of somewhere between six and twelve percent interest on the money borrowed, real estate investors will be given the opportunity to close on more deals in a shorter period of time. What you pay in interest comes back in the form of volume and efficiency. It is truly the definition of a win, win scenario for both parties involved.

More often than not, private money lenders tap into their own bank accounts to fund a deal. You won't have to wait an extended period and can move quickly on time-sensitive values. Consequently, traditional bank loans can offer nowhere near the efficiency of a private money loan.

Funding Deals With Hard Money

It's no secret; savvy investors know that they need to complement their private money sources with a hard money lender. That said, I could argue that a hard money lender is the most important person you will work with on a project at any given time. Not unlike private money lenders, hard money provides short-term, high-rate loans and will also typically cover the cost of purchase and rehab expenses. However, hard money lenders are typically more organized and semi-institutional. Perhaps even more importantly, they have been licensed to lend to investors like yourself.

Hard money funding is typically distributed in draws against the work being done. It is, therefore, relatively common for a hard money lender to set up a payment schedule for completed work.

It is also important to note that the term "hard money" does not imply a degree of difficulty in acquiring said funds; in fact, it's quite the contrary. While the terms and criteria accompanying a hard money loan can be extensive, they are typically easier to overcome and more reliable than your standard institutional lender. If for nothing else, receiving hard money approval is accessible in the face of a good asset. Most hard money lenders make their decisions based on the investment in question. It isn't until after the home has been deemed promising that they will see if the borrower qualifies. In other words, the more promising the project, the more likely you are to receive a hard money loan.

While hard money is certainly more expensive to borrow, it is more reliable. That said, it is not subject to traditional credit guidelines (the same ones that protect banks). Instead, fees for borrowing hard money are often delineated in points (three to five, to be exact). Points represent an additional upfront percentage fee based on the loan amount. It is important to note that these fees are not universal, and different hard money lenders will bring other terms to the table.

Subsequently, hard money lenders are trying to mitigate risk by increasing interest rates, thus charging investors more for their services. But that increased rate is more than worth it, considering investors will be able to move on deals much faster than they would be able to with a traditional loan.

A hard money lender will rarely fund a real deal. It is more common that they will only invest a percentage of the purchase price or the after-repair value (ARV) – usually around 70 percent. Also, hard money lenders tend to favor deals that take less time. It is common for the duration of a hard money loan to top off at 12 months. If your agreement looks lengthy, you may need to side with a private money lender or someone willing to fund your project for an extended period.

In the end, chances are a hard money loan is your best bet to secure a deal with a significant profit margin. While five points may sound challenging to overcome, sometimes the profit margins awarded to those who can close on a home quickly are well worth the investment.

Even with all of this in mind, investors are still advised to use caution when working with a hard money lender. I encourage you to have multiple exit strategies lined up in the event something unexpected happens.

Private hard money lenders have become a trusted source of funding for real estate investors on nearly every level, regardless of their experience. Both hard money and private money, for that matter, have become the backbone of any successful real estate entrepreneur. You simply can't beat the speed and efficiency they have to offer. While they may come with a heftier price tag, I can assure you their positives greatly outweigh their negatives.

Tuesday, January 17, 2023

Finding Hard Money Lenders For Real Estate Investing

Many new investors fret over how they will find Arizona hard money lenders to get moving on their project financing. But here are a couple of simple ways to approach this:

REIA or MeetUp Meetings: Often hard money lenders will speak at local real estate events. If not, ask fellow members to see if they know any trustworthy lenders.

Real Estate Agent or Traditional Lender: Ask that realtor, or mortgage broker, in your real estate network if they know a hard money lender you could do business with.

Google "Hard Money Lender": Just be careful, there are some unscrupulous individuals out there. Be sure to ask for references and talk to fellow investors to get their opinion.

Working With Hard Money Lenders

Working with Arizona hard money lenders will be somewhat different than going through a traditional bank for financing. Hard money lenders are not regulated similarly to conventional financing institutions. The lack of regulations means the rules of the loan will be different. Borrowers will even have the opportunity to negotiate directly with lenders on the loan terms. Phoenix Hard money lenders will decide what to accept at their discretion, specifically concerning credit scores, debt-to-income ratios, etc. Remember that the essential thing hard money lenders want is a return on investment. Melanie Cohen from Instaya advises to "make sure that the property is a worthy investment and communicate its potential to your lender. Compared to a traditional loan, working with hard money lenders is more about investment potential than your financial standing".

How Does Hard Money Lending Work?

Given that these are private individuals, every hard money lender is different. As stated above, these lenders come with their own requirements, including the process they need to close the transaction.

To give you a general idea, this is the usual course hard money lending takes:

Find a hard lender near you. Do not let the rejection of a bank loan drive you to desperation. Research and make sure the lender can be trusted. Do they have a legitimate website? Are they in good standing with their own investors? Do they have pending lawsuits over bad loans?

Arrange a meeting with the lender. This is also the time when you can inquire whether they specialize in a kind of investment property or if they have worked with projects previously that mirror yours. Assess the time frame specified for the loan and see if this is something you can work with.

Prepare a contract. Make sure that you are offering a good deal with a sound financial plan.

Inform the lender of your contract price. Most lenders are willing to fund 60 to 70 percent of the property's ARV. The remaining 30 to 40 percent is up to you. You will increase your chances of getting approved if you already have this at hand.

Get the property appraised. The lender will either send a list of their trusted appraisers or have their own.

Prepare additional documents needed. Some lenders may require that you present other documentation, like W-2s, bank statements, pay stubs, etc.

Wait for lender's approval. If it is a deal that the lender finds satisfactory, then they will inform you of the amount and terms for payment.

Consult with a lawyer. Make sure that you are legally protected, especially after getting the lender's counter offer.

Close the loan. Typically, this will be done at a title company or a lawyer's office. The lender will then put the money into escrow at the title company. The title company would make sure all paperwork is completed and that checks are issued to all parties involved. Additional costs may include any closing fees and property insurances.

More often than not, lenders grant money to properties that will not be in the market for long, that have good selling potential. Make sure your team budgets ample time to complete renovations. There's no sense in coming up with unrealistic projections. This cannot only set you back financially but possibly burn a possible future relationship with your hard money lender.

Alternatives To Hard Money Loans

Arizona Hard money loans are not the only form of financing with approval requirements that differ from a traditional home loan. Numerous alternatives may help you buy your next property:

Home Equity Loans: If you are trying to finance your second property (or an investment property), consider tapping into your existing equity with a home equity loan. The approval requirements are primarily based on the value of the property and the amount of equity you have built up. These loans are also associated with lower interest rates when compared to hard money loans.

FHA Loans: Federal Housing Administration (FHA) loans are an option for borrowers who do not meet the traditional criteria. FHA loans have lower approval requirements and do not consider past financial challenges (namely bankruptcy) during the application process. Read our guide to FHA loans to learn more.

VA Loans: Loans by the Department of Veterans' Affairs require no down payment and have much lower approval standards. These loans are only provided to qualified veterans, active duty service members, and their spouses. The interest rates and application requirements are often much more favorable if you do qualify.

Summary

Learning what is a hard money loan for real estate acquisitions has become commonplace in the housing sector. If for nothing else, a hard money loan gives investors an edge over those using traditional financing methods. Not only should hard money borrowers be able to secure capital faster, but sellers will also favor their offers because they are made with cash. That said, if you are looking to fund a deal, you may not want to ignore hard money; it could be the one thing that gets you what you need.

Have you ever bought an investment property with hard money? What was your experience like? Feel free to let us know how things went in the comments below.