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Good vs. Bad Hard Money Loans

Hard money loans are an excellent option when needing money to flip a house. Hard money loans, also known as fix-and-flip loans, typically have low barriers to entry. With that being said, how do you know if you’re getting involved with a good or a bad money loan? Hard money loans are provided by a private business or investor pool that bases the loan value on a couple of key factors such as the purchase price of the property, costs of renovation, and the After-Repair Value.

Good Hard Money Loans

  1. Flexibility. A good hard money loan should be more flexible than traditional loans. Lenders evaluate each situation individually based on the investment opportunity. The lender should be able to make adjustments to fit what works for you, based on your unique situation. This is unlikely to happen with a traditional loan and complex underwriting process.
  2. Speed. If you are someone who is in need of funds fast, a good hard money loan can be the most viable option. Not only can a good hard money loan be fast through the closing process, the underwriting guidelines for hard money lenders are often less restrictive, causing the process to run quicker as well. 

Questions to Ask When Looking for a Good Hard Money Lender

  1. Do you only work with investors? If you’re hoping to use these funds for an owner-occupied property, a hard money lender that works exclusively with real estate investors won’t be a good fit.
  2. What is the interest rate? You don’t want to be surprised by a high-interest rate.
  3. How will I repay the loan? Hard money lenders handle repayment in different ways. Some ask for interest-only payments, and some request full repayment at the loan’s end. Others work much like traditional mortgage lenders, with regular monthly payments throughout. Find out what each lender expects so you can be sure the repayment fits within your budget.
  4. What fees will I pay? Get a thorough accounting of any fees you might pay, as well as any points you’ll be expected to pay. A “point” is an upfront fee, calculated as a certain percentage of the total loan that lets you lower your interest rate.
  5. What happens if I pay the loan off early — or late? Some lenders don’t let you pay a loan’s balance early. And some charge additional fees if you pay any installments late. Know what your lender expects ahead of time.

A quick loan guide can be found in this article concerning points & fees.

With free applications, same-day approval, a 48-hour close time, someone is always available to answer questions. DFW Hard Money is here to take your lending relationship to the next level, thus avoiding those that operate hard money lending scams.

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