There are many reasons why people choose to use a hard money lender. They include those that work in construction, those that flip homes for a profit, short term investors, and those that do not have the best credit, but would like to build it up and buy a house.
Hard money loans are short term in nature and usually only last for one year. In addition, the interest rate is usually higher than a conventional mortgage and they can be paid in one lump sum. Moreover, because you do not go through a bank in order to secure this type of loan, qualifications for a hard money loan are more relaxed, as hard money lenders tend to be lenient on personal credit.
That being said, if this is the route you choose to take in order to secure funds for your next real estate investment, there are a number of steps that you need to take. First and foremost, you need to determine how much money you need and have a plan for how you plan to pay it off. Whether you plan to build on the property and then sell the home, fix up the existing home and sell it for a profit, or will be able to refinance at a bank for better terms, you need to know what you will do because 12 months is not a long period of time.
After you have figured out how much you will need and how you will pay it off, you will also have to come up with some additional funds. This is due to the fact that your lender may require you to come up with up to 40 percent and/or you will have to pay closing costs.
At that point, you need to find a lender. Be aware that most private money lenders only lend in the area in which they live or their home state, as they like to be able to see their investment. Also, be sure to check out their websites to ensure that they are real and are in good standings with those they do business with. Also, try to get in contact with a person and do not just conduct business online as this will give you more security. Additionally, many websites are only data collectors that then send you on to the actual lenders.
Another way you can find a hard money lender is by asking your real estate agent if they know any. If they do not, then you can attend a local real estate investor meet up. Often, hard money lenders will either sponsor or speak at these meetings. In addition, you can also check with online real estate investing communities, as well.
Being able to find the right hard money lender can be challenging. However, it is extremely important because if you use the wrong one, it can cost you deals. This is because if they do not come up with the money, then you will not be able to close the arrangement and someone else may swoop in and take it from you.