Does house rehabilitation sound gratifying to you? Do you want to start your own real estate business yet you don’t have enough capital? Well, angels have gone down and handed answers to your prayers. You can now start tossing houses even with a small capital all through a hard money loan. How? Read on.
A hard money loan is often given to those who want to buy a property but their budget is not enough. With the right documents and proper funding, hard money lender will give you fast money that you can use to buy that property. Of course, the loan comes with an interest and the property itself is the collateral. This will assure the lender that you can return the money, thus the fast process.
As far as interest is concerned, your interest percentage can be categorized in two factors. The first one will give you a loan percentage based on the purchase price and the other one is based on appraised value. For me, the later one always seems to be the best option. When you get an interest through an appraised value, your interest will depend on the value of your property which is much fairer than the purchase price. One more thing is that a hard money loan requires a bit of additional fees such as the Loan points, the closing costs and of course, the interest amount. All of these must be paid on top of your original loan value.
For a better understanding, take a look at this example.
Let’s assume that the lender will loan you up to 70% of your appraised property’s value. In able to get this loan, you have to top it up with five points, $500 dollars for the closing points or the document fees and at 10% interest payable for 6 months.
How much will be your over-all loan amount?
Assumed that you will loan $150,000. They will loan you up to 70% and that’s exactly $105,000. In able to acquire this loan, you need to pay $5250 in points + $500 dollars for your escrow fees, document fees and notary stuff. And lastly, you have to pay an interest of $10,500 payable for 6 months or until the property was sold so that would be $1,750 a month. After few settlements and when both parties, the borrower and the lender have agreed upon certain loan agreements then the deal is made. You will then sign some documents and your money will be ready in a few.
Understanding the loan fees and percentage is not a difficult nor easy thing to do. Just learn the right computation and you’ll never go wrong. However, this is not the end of your to success as a real estate investor. Once you knew how the rules and fees in hard money loan works, next concern is to choose your local hard money lender. Each lender has their own rules and agreements so you should choose the best one that will suit your needs and your wants as a borrower as well. Welcome to the real estate world and Good Luck!