Before Taking Out a Hard Money Loan – Have Your Exit Strategy Ready

If you’re interested in taking out a hard money loan or a private money loan, it’s crucial that you know precisely what you’re getting into.  One of the most important steps is in determining your exit strategy long before you ever start the private loan application process.

Unlike traditional bank financing, hard money loans tend to be shorter term (from 9 months to three years on average) and more expensive (interest rates range from 7.99%-12%), but by the same token, they offer numerous benefits that bank financing does not.

Determining Your Borrower Profile

Many of the people who opt to apply for hard money loans do so because banks either take too long to approve their loan request, or the type of housing doesn’t necessarily fit the bank’s lending criteria (such as with homes in need of repair).

That being said, read over the list below to determine which of these profiles most closely matches your own borrowing intentions for seeking out a hard money loan.

The Experienced House Flipper

If you’ve flipped several homes for profit, you likely already know how long you’ll be in the property for. You’ve taken into consideration things like renovating the home, how long it has been on the market and so on.  Experienced house flippers typically carry hard money loans anywhere from 2 months to a year and then pay it all off when the escrow closes.

The Owner-Occupied Borrower Who Had a Short Sale or Foreclosure

If you’re a home buyer who had a short sale or foreclosure sometime within the last three years, chances are that as soon as the three-year anniversary of that short sale arrives, you know that you can refinance and go from private money loan to conventional mortgasge loan.

Oftentimes, this process is started well in advance (often a month ahead of time) before the anniversary date, so that the A-Paper mortgage broker can get the paperwork underway to transition to a conventional loan.

The Self-Employed Borrower

For entrepreneurs, hard money loans are often used as a stopgap measure until either their next two years of tax returns show much higher income or they have a portfolio lender who will take into account their unique situation, and look at things like revenues, net income, liquid and real estate assets and so on.

If this sounds like you, and you need a lender who looks carefully at these points relative to your business, reach out to us – we can help!

The “Money from a Friend” Borrower

When you receive gift funds from a family member to be used toward a down payment, they’re noted as such from conventional lenders.  But what about money from friends?  Under the rules and regulations of traditional financing, this is considered a personal loan and may disqualify you from getting the financing you need.

The Resources and the Knowledge to Help You Take the Next Step

We don’t share these exit strategies with you as if they were some kind of hidden, little-known knowledge.  These are just the facts of hard money lending.  If you can get the money you need through traditional or conventional means at a lower interest rate, why wouldn’t you?

You absolutely would. However there are cases, such as those we just noted, where banks won’t give you the time of day, either because you don’t meet the proper income requirements, they’re not interested in financing fixer upper homes, or any of the other scenarios mentioned here.

In these cases, hard money loans can give you the short-term infusion of cash you need to get repairs done, get money to refinance with, and so on – the very things that banks tend to shy away from, simply because financial institutions are not in the business of real estate.

If you’re ready to take the next step, reach out to us and we’ll take a closer look at your unique situation and determine if we can help you. Even if we can’t, we’ll take the time to point you in the right direction and help you see what issues may factor into your decision either way. Call our main office 7 days a week from 8 am to 5 pm PST, or fill out contact form to receive guidance by email.