Understanding Hard Money Loan Options
Real estate investors rely on the properties that they purchase to produce income. While a strong buyer’s market certainly favors investors, it does take a great deal of financial savvy to successfully navigate real estate investments particularly in markets like California. After all, conventional financing, such as the FHA loans used to purchase residential homes, is not always available to real estate investors. Instead, many investors turn to private money lenders – also known as hard money lenders – to finance their purchases with hard money loans.
Finding A Fit For Hard Money Loans
Hard money loans, which are also called private money or equity-based loans, are designed to meet the needs of real estate buyers who can’t use traditional financial products. In many cases, hard money loans are needed because traditional banks and other lending institutions won’t finance real estate purchases that don’t meet stringent underwriting criteria. In other cases, private money loans are a better fit because individuals are unable to secure financing due to past foreclosures or credit problems.
Buyers and investors who want to purchase real property but don’t qualify for traditional financing may be able to utilize hard money loans. Before you apply for a private money loan, it’s essential to understand what types of products are available.
Fix-and-Flip Hard Money Loans
True to their name, fix-and-flip hard money loans are designed for real estate investors who want to buy properties, rehab them and sell them at a profit. While these homes often don’t qualify for FHA financing because they need too much work, they are something many hard money lenders would consider . Fix-and-flip hard money loans are widely used across the nation and can be utilized by both new and experienced real estate investors. Most hard money loans designed for fix-and-flip properties can be used to finance both the purchase price and the cost of repairs. These hard money loans may also be referred to as residential or commercial rehab loans, and are offered by hard money lenders and private investors.
Bridge Hard Money Loans
Bridge hard money loans are a type of hard money loan used by business owners to cover gaps between their operating expenses and available funds. A business owner might choose a bridge hard money loan to fund operating expenses, expansion or to purchase a property free and clear. These hard money loans are also a good alternative when a bank won’t refinance a mortgage.
Ground-Up Construction Hard Money Loans
Some real estate investors want to build innovative properties but turn to hard money lenders when they can’t find the financing to do so with traditional financing. Hard money loans for ground-up construction provide the funds needed to purchase land and complete construction projects. These types of hard money loans are often used by real estate investors and business owners who want to build specialty properties that are difficult to appraise or are perceived by traditional lenders as high risk.