If you’re a beginner with using private money or hard money to invest in real estate, then read on to find out the step-by-step guide to the Hard Money Lending process. In this blog you’ll learn what is Hard Money Lending and how it could it help you in funding your investment.
Hard Money Lending for Beginners, in a Nutshell
A hard money loan is a chance for you to go into the real estate business or the house-flipping business without worrying about the requirements of traditional lenders. Hard money loans are asset-based loans that are versatile, easier to acquire, and more flexible in rates and terms.
This is because hard money lenders place more importance on the property than they do on your credit scores. Emphasis is placed on either the current value or the appraisal value after repairs of your property, and congruently, the property’s potential to earn income. That said, hard money lenders also need to see where you stand credit-wise, how much you can invest, your credit history and your real estate experience so that they are betting right on your project.
With conditions not as traditionally strict, hard money lenders prefer to finance real estate projects that provide income, such as rental properties or fix and flip projects. Rental property rehabilitation is also a likely loan purpose.
Steps towards that loan approval, the Hard Money Lending Process
Perhaps you’re wondering how you can start investing in real estate to increase your monthly cash flow or build wealth. There are many real estate investment options, and should you be needing capital, you have hard money lenders to assist you.
1. What is your goal?
Are you planning to invest in a rental property, or are you going to buy a property for a fix-and-flip? Your goal sets the tone of your hard money loan. Your endpoint influences your loan term and repayment scheme for better fund management.
2. Do you already have a real estate property in mind?
You may have narrowed to a few candidates the properties you get to pick one. Better still, if you already have chosen the real estate property for you. Before meeting with your hard money lender, you should already have the figures income projection.
In eyeing a property, you should always be mindful of the location, the potential in the area, the businesses, the zoning regulations, the real estate market in the locality, and current or future developments in progress.
3. Look for a hard money lender
There are quite a several Hard Money Lenders that operate in the United States. However, people who have been in the industry for quite some time advise you to look for local hard money lenders in your area. The reason for this is that since they operate locally, they will have a better feel of the local market, and it will be easier for you to build up a long-term business relationship with the lender. Local hard money lenders are flexible in their dealings because they want to maintain long-term business relationships with their clients. If so interested, you can network with local developers, house flippers, or a real estate association in your area and look for recommendations. You can also do this in the comfort of your home by searching the web for local hard money lenders, for instance, you can search for the list of private lenders in Houston or hard money lenders Houston area on your web browser.
4. Fill-up Application Form
Traditionally, loan applicants have to visit the offices of Hard Money Lenders and talk with the employees to fill up a loan application form and be pre-qualified. Online forms are now the standard in applying for a loan, and submitting an online form will also enroll you in a pre-qualification. An example of this is the online application form of Houston-based GL&L Holdings.
5. Gather requirements and other documents of importance
For the collateral, you will need to provide pictures of the property. Be ready with the photos of the interior and the exterior of the property. The photos of areas that need replacement will help your lender in the pre-qualification. Sometimes, it helps if you can provide a walk-through video of the property, including its perimeter.
Have on hand a copy of the proposed contract you have with the owner of the property. It does not matter if it still lacks the proper signatures. What is important here is that you are holding proof that you have already engaged in and are serious in the negotiations for the property.
Photos of the property do not complete the story of what you want to happen to it. You will need to justify the amount of loan you are applying for from the Hard Money Lender. It is thus logical for you to present documentation on the Scope of Work and the Bill of Materials, inclusive of all costs to the lender. This helps to establish the Appraisal Value after Rehabilitation of the property, thus justifying the amount you are applying for.
It is important to secure an estimate of all insurance coverage premiums related to the collateral and the mortgage.
A meeting with your lender to present your project will have to come sooner or later. It is wise to have with you all the needed documents to support you in your project. Write a short analysis including all the computations to show your lender that the project will net you a good profit in the investment, whether it is for rental or as a fix-and-flip. This will show your lender that it is worth investing in you.
6. Be ready with your financials
It is not always that a Hard Money Lending Process will include an assessment of your financial capabilities. However, it is best to be ready just in case there will be a need to check your financials, though hard money lenders focus more on the property and its potentials. Not necessarily in order, the first one is capital, which tells you how much equity you can invest into the project. Putting on higher equity means that you are willing to invest more, not only financially but also emotionally, in the project. Implicitly signifying that you will take care of the loan as much as you take care of your investment.
The second is your credit history. A good credit standing can get you much leverage from your lender as it shows that you know how to manage your loans and more importantly, you are religious in your payments. Thus giving you an advantage on the loan amount, meaning you can negotiate for a higher LTV (Loan to Value) ratio from your lender. Credit history also reflects your character in handling your loans and finances.
What is Next After Approval
Be sure that you have enough for the closing costs. These are the costs you will have to pay before the consummation of the loan or mortgage contract. For instance, these costs include Appraisal, Credit History, Home Inspection, Title Research, and Insurance. Closing costs go up to about 7% of the mortgage amount.
The final step will be to talk with a title company. Title Companies help facilitate the closing of the mortgage with your lender. Lenders usually have preferred Title Companies that they trust and have had secure business relationships with for many years.
Final Words
Securing a loan from Hard Money Lenders, even if you are a beginner in Real Estate Investments, is not as tedious and difficult as you may believe. You only have to know and be able to defend your project in your meeting. Hard Money Lenders will walk you through the process and help you along the way, facilitating a smooth transaction between parties until the time of owning your investment property towards financial freedom.
New to the industry? We can help you at GL&L Holdings. You can check other articles in our blog to learn more about Hard Money Loans and Real Estate Investments. We will be more than happy to assist you in your first foray into real estate investing. You can also call us at (832) 770-9415 or shoot us an email at info@gllholdings.com.
