5 Essential Steps to Acquiring a Hard Money Loan
Hard money loans are great options if you are in real estate or looking to flip a house. With its fast-finance quality, you can shorten the purchasing process from weeks to days. This is vital time you could use to get started on your projects. However, your lenders want to make sure you are good for the money—here are your essential steps to acquiring a hard money loan.
Down Payment
The requirements for hard money loans will vary depending on the lender, but a down payment will likely be a necessity. This is to help mitigate the potential that you default on the loan. In this case, the lender will see no return on their investment. Then, they must assume the task of enhancing the property to put on the market or sell it at an auction in order to make back some money.
With the risk of hard money loans being so high, lenders want to ensure they are protected if you fail. It is important to ensure you have the means, as lenders can ask for up to 50 percent of a down payment. If you are looking for trusted hard money lenders in Henderson, then Streamline Mortgage is here to assist you in making the process as streamlined as possible.
Financial Prowess
Your lender will usually expect you to make monthly payments with a hard money loan. In addition to these payments, you must cover any holding costs. These holding costs can be Homeowner Association dues, indemnity, and taxes. Due to this, it is vital to show your lender that you have the cash reserves necessary to cover these payments.
Debt-to-Income Ratio
Acquiring a down payment is among the most important and essential steps to acquiring a hard money loan. In that, lenders will often investigate your debt-to-income ratio to ensure you are able to make monthly payments and return their investments. A debt-to-income ratio is the percentage of how much your income goes toward paying any debts. As stated, the requirements for a hard money loan vary, but, in any case, it would do well to ensure your percentage is lower than 43 percent.
Home Equity
If you have any home equity, you may be able to use it as leverage in acquiring a hard money loan. Sometimes, lenders will allow you to use any properties in which you have equity to acquire a hard money loan. This will prove especially useful if you are unable to meet the down payment requirement—you can use your home equity as collateral. You may even use multiple properties to secure a loan.
Real Estate Experience
As touched on earlier, making back the money you borrowed will depend on your ability to sell the property. This means you must know how to complete your project efficiently for it to be marketable. As such, lenders want to know you have experience in the real estate world.
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