Real estate can be an attractive investment opportunity with the potential for a substantial profit. Once you decide to get your feet wet in the real estate market, you need to know what you should do next. Various financing options are available, such as commercial real estate loans, mortgage lender loans, line of credit loans, and private or hard money loans. Even with all these tools, getting approved for a loan isn’t easy.
Traditional lending options can be challenging to obtain for investment purposes and can take too long to capitalize on a great deal. That’s where a hard money loan comes in. The property you’re purchasing becomes the collateral to secure the funding. The terms and conditions can be negotiated and tailored to your specific needs since it’s a private lender, an individual, or a single company. Here’s why hard money loans are great for new real estate investors.
Financial Standing Isn’t the Focus
Hard money loans use the property and the business plan to make it profitable to secure and back the financing. Things like occupation, annual income, and credit score aren’t needed to obtain a hard money loan, which can be very alluring, especially to a new real estate investor. The lender is only concerned with the liquidity of the property if they need to sell in case of default and the benefits and potential revenue the property will generate.
History and Experience in Real Estate Not Required
Private money lenders who handle real estate have little to no interest in knowing if you bought and sold real estate in the past to approve the financing. On the other hand, banks would require this before approving you for a loan. Even if you had issues with repaying loans previously, that wouldn’t necessarily negate you from getting approved by a private money lender. As long as the property is valuable enough, they might be willing to overlook a lot of your past issues. Also, you don’t need to verify or be guaranteed by another party.
If you’re familiar with a regular mortgage or commercial real estate loan, you know that it’s an arduous process that can take months. That’s time you could be making money or time you could begin work on renovations to turn around and flip the property. Or, perhaps a great deal came up that needs to be acted on quickly or it will be lost to someone else. Hard money loans are speedy; think days or even hours, not months.
Hard Money Lenders Are Local
When you’re just getting into real estate investing, you haven’t established a network of contacts who can help you get funds easily for a property you wish to purchase. Luckily, you don’t need an extensive network or to do an abundance of research to find a hard money lender.
You can do a quick online search, look for local ads that hard money lenders put out, or simply ask your family and friends. The odds are good that you can find one very close by. The upside to this is you can talk to a human and make a human decision based on the deal’s details, whereas commercial banks make computer-based decisions using limited financial factors.
Apply for a Hard Money Loan
You’re excited about the possibility of using a hard money loan to begin your foray into the world of real estate investment, you’ve found a local hard money lender, and you’re ready to go. The process for obtaining a hard money loan is straightforward. You need to prequalify or get a preliminary assessment of the value of the potential property you wish to purchase.
A lender wants to ensure the repair value or potential revenue makes sense for the asking price or offered price. This gives the lender an idea about the risk of loaning you the money. Before heading to the lender’s office, you should bring some information and documentation. Don’t worry; it’s nothing like what a traditional mortgage lender requires. Here’s what you should bring with you to the prequalification meeting:
- Government ID. You need a government-issued ID with a photograph, such as a state driver’s license to prove your identity.
- A presentation letter. This letter will essentially function as a loan application. Include all of your pertinent personal information such as name, address, experience, and credit details. Also, along with the letter, include pictures of both the inside and outside of the property if possible.
- Last 60 days of financial statements. Even though the property will be the main deciding factor in your approval, they may still want to see some financial information.
- Repair estimate. If you want to get approved, you should have details addressed, including the repairs, renovations, or updates the property in question may require.
- Estimated profit analysis. An overview of the potential revenue of the property will help the lender assess the risk and decide whether the investment is suitable for them.
- Purchase contract. If you can, bring in the actual purchase contract you intend to submit to the current owner. Again, this gives them more information about the purchase details and shows you have put in your due diligence.
After you prequalify, the next step is to provide an appraisal or BPO evaluation to confirm your property valuation. In addition, supporting documentation for your repair estimates and renovation costs, such as estimates from contractors, may also be required. Once all of this is verified, you’ll likely be officially approved, and you’ll need to sign a basic agreement outlining the terms and conditions.
Reach Out to Titan Funding for Hard Money Loan Options
When you’re ready to get started, reach out to the team at Titan Funding. Our experts can go over hard money loan options available to you, answer any questions you may have, and guide you through the process. You can reach us at 855-929-1134 or fill out our secure online contact form.