If you’re trying to figure out more information about hard money loans, chances are you are looking to get some type of construction or bridge loan. That’s because hard money construction loans are really only a temporary solution to funding a property or construction project. Here is a quick and easy way to learn and understand how this process works.
For starters, you need to search around for lenders. If you can get a bank loan or home equity loan, it would probably be a better deal, but if the only thing you have to borrow against is the hard value of the property or project, then a hard loan may be your only solution. I’ve written another post specifically about why people use hard money loans if you want to read more on this subject. To find a lender, check with a local mortgage broker or two, or find a broker that specializes in hard money loans. You can also go directly to the lenders. Most hard money lenders have company names like funding, lending, coalition or financial group. Search around and you will likely have a few options nearby. There are suprisingly more of these types of lenders than you’d think.
Once you find a few lenders or loan products, compare the rates and terms to see which is the most favorable. Because of their risk, these types of loans have higher interest rates and lower durations than other loans. However, the terms can vary dramatically, so make sure you compare your options and choose the overall best loan.
Once you get your loan you will receive the money via wire transfer or cashiers check. You only have a short period to pay back the loans, usually not more than five years. Oftentimes, even less time. You’ll have to make sure that you put the money to good use so that you can finish your construction project, remodel, or other project you are borrowing for. You’ll need to have the project finished and ready to apply for a new loan before your hard loan expires. That means time is usually of the essence.
When your project is finished, you borrow against the completed construction project and use the new loan to pay off the hard loan. That’s really all there is to it. Besides making sure that you find the most favorable rate and terms, the most important thing you need to do is to refinance the property and pay off the loan on time. If you don’t, the hard money lender will probably end up owning your property instead of you.
Have any other comments or questions about hard money construction loans? Leave us a comment.