Real estate investments can be highly lucrative when done right. Purchased at the right price and every step and figure calculated, from acquisition to closing when you sell the rehabbed property. Hard money loans are well-suited to those who are flipping real estate. Being an experienced flipper may lend you an advantage in gaining approval of a hard money loan. Otherwise, partnering with a professional investor can lend you credibility with a hard money lender. While borrowers can use them to finance the purchase of a primary residence, it would be highly advisable to acquire a new loan as quickly as possible.
We will explore the basics you should know about using hard money lenders in Minnesota.
Hard money is a term that describes borrowing without going through the traditional lenders to purchase real estate using the property as collateral along with other factors to approve the loan. When borrowers either lack time to go through the conventional process or are unable to attain lender approval, hard money lenders offer an alternative.
Ratios
In Twin Cities, hard money lenders generally offer low loan-to-value (LTV) ratios, with a maximum range of around 50 to 70 percent LTV. This ratio is calculated by dividing the loan amount by the property’s value and helps the lender determine if the loan falls within their desired range. These ratios are put in place to ensure that the lender can avoid taking any losses on loans. Some hard money lenders may even assess the after-repair value of the property and base their lending decision on that value.
Assets Needed
In Twin Cities, hard money loans are primarily asset-based. It’s essential for real estate investors to understand that hard money lenders value the property more than the borrower’s credit history. These lenders can benefit from high profits on interest rates, making them more inclined to offer loans to borrowers with a poor credit history or for the convenience of quick financing. Therefore, investors should focus on the property’s value rather than their credit score when seeking hard money loans in Twin Cities.
Terms
Borrowers seeking short-term loans of up to 12 months can explore the option of using hard money lenders in Twin Cities. Some of these lenders may even finance the rehabilitation costs associated with the property. These loans are typically funded by either a private individual or an investment fund. Since hard money lenders understand that borrowers may have a poor credit history and limited options, they may require down payments ranging from 10 to 30 percent. As a result, borrowers should expect to pay higher interest rates for these loans.
Costs
When using hard money lenders in Twin Cities, borrowers should expect to pay higher interest rates due to the high-risk nature of these loans. Interest rates for hard money loans typically range from 8 to 12 percent, making them more expensive than traditional loans. In addition to interest rates, borrowers may also be subject to other fees, such as origination fees charged in points. Each point represents one percent of the loan value, and for hard money loans, these fees can be as high as 8 points. Furthermore, borrowers may also need to pay for appraisals, processing documents, and builder’s risk insurance, which is often required to protect the property during the construction or renovation process.
It’s important for borrowers to understand that while hard money loans are more expensive than traditional loans, they can provide quick financing and allow investors to take advantage of lucrative real estate opportunities. However, borrowers should carefully consider the costs associated with these loans and ensure that they have a solid plan in place to repay the loan on time to avoid incurring significant financial losses. Working with a reputable hard money lender and seeking professional advice can also help borrowers make informed decisions about using hard money loans to finance their real estate investments in Twin Cities.
Penalties
It’s not uncommon for hard money lenders in Twin Cities to charge prepayment penalties if a borrower pays off a loan before the agreed-upon terms. These loans are typically structured in a way that requires the borrower to make interest payments before beginning to pay down the principal. As the loan approaches its end, the payments begin to include more principal, eventually leading to full repayment. Hard money lenders take risks, but in the event of a failed loan, they can acquire the property and sell it to recoup their losses.
If you’re considering using hard money lenders in Twin Cities, Sota Home Buyers can help. Our team of professionals has extensive knowledge and experience in navigating the world of hard money lending. We can help you assess the best path for your financing needs and answer any questions or concerns you may have, with no obligation to commit. At Sota Home Buyers, we even have inventory available for Twin Cities investors like you. Contact us today by calling 612-293-3532 or sending us a message to learn more!