Honestly speaking, a hard money loan, in essence, is an excellent way to secure your finances and buy a house quickly. After all, they don’t have to rely upon your personal requirements. Instead, the payment or interest rate will solely depend on the home you bought.
It, in turn, makes it much easier for a borrower who doesn’t have the perfect credit score but wants to buy a property anyway.
A hard money loan can be ideal for a real estate investor who requires a substantial amount of money quickly. With it, they can make the purchase and broaden their portfolio massively.
Hard Money Loan And The Credit Score Requirement
As mentioned, in a hard money loaning option, the emphasis will be on the property. But, as the lender has to give a lot of money, they might ask you to show your credit score. Or else it will be impossible for them to understand if you’re a good fit for the investment or not.
Anyway, on average, you will need to have a credit score of 600 as a borrower. Conversely, if you were to try out a traditional lender, you had to keep around a 680-700 credit score, at the least. Due to this reason, we consider a hard money loan to be the best option.
Is There Any Other Requirement, Though?
Yes, obviously. When you’re dealing with a hard money lender, you simply cannot get away with a single requirement. Aside from this, you may have to offer insight on some other perspectives, like:
- The Loan-To-Value Ratio: Like a traditional loan, you’ll have to invest a little bit of money in the purchased property. For example, in the case of a fix-and-flip purchase, you will need to invest at least 15% of the capital. Conversely, an extra 25% of the same should go for the after-repair value. 25% of investment should be made in a rental property, while the same must be invested in refinancing.
- Proof Of Affordability: A hard money lender won’t lend their money simply because you have asked them to. Instead, they will ask for some sort of proof that you can pay up when the time’s right. When it comes to affordability, most people tend to show their credit score and their income stability to get through this hurdle.
- Previous Flipping Experience: Some people will ask you about your past experience in the segment of fixing and flipping. They’ll want to check if you have succeeded before and, therefore, are credible enough to get their money. But, not all of them will be as demanding as this. After all, you have to start from somewhere, no?
- Flexibility: When it comes to a hard money loan, you can simply change or alter the terms as you want. As you’re not dealing with an organization with a stringent rule or policy in place. So, you’ll get loads of options, both financially and with regards to the loaning option. Just make sure to be clear about your fiscal condition.
The Duration Of Borrowing Money
Just like a conventional loaning proposition, a hard money loan will have different terms with regard to the duration. However, the period, typically, will be much shorter than usual, as you are making a quick investment with them.
On average, you’ll get somewhere between 12 months to 18 months for paying off all of your debt. Thus, the longer you’re holding onto the property, the more it’ll cost you. Hence, try to fix it up quickly and then sell it to the best suitor.
A hard money loan was explicitly designed to service a short-term investment in the real estate segment. Hence, if you’re considering flipping a building or a property of some sort, you should definitely opt for the same. The benefits of the proposition will surely outweigh the risks or challenges you may encounter.
When you’re starting out, just make sure to put together a clear and proper project plan. Once you’re done with that, then you can start looking for a local yet reputable lender. Look how they have worked with their previous clients.
It can help you understand if they are flexible and suitable for your purpose or not.