If you have recently decided to buy a house at a low price that needs some work, provide the work it needs, and then sell it at a higher price, it is important to note that one popular option for financing your first attempt at flipping a house is a hard money loan. Since the terms of a hard money loan require significant collateral and come from a private lender instead of the bank or credit union associated with many other types of loans, the terms can vary tremendously from one transaction to the next. Before signing on the dotted line and committing to any loan, it is a good idea to be aware of the information provided below.
Hard Money Loans Are Short-Term Loans
In recent years, some new investors have been dismayed to discover that hard money loans are usually only available for short periods of time. Therefore, there is a lot of pressure on you and the crews you hire to do the bulk of the work to complete the project as soon as possible.
In addition, it will need to sell quickly at the price you need in order to make an acceptable profit. If you are unable to do so, you risk the possibility of losing your collateral, paying high late fees or penalties, or both.
That means that you need to extensively research the property in question, its neighborhood, and any expected growth or changes to the area that might impact its future value. That information might give you a better position to negotiate the terms of your contract, so it is best to be very well-informed about any detail that could affect your investment or the terms that relate to your loan.
The Funds From a Hard Money Loan Are Often Available Within Weeks
One problem that has arisen in recent years for aspiring home flippers is the often lengthy delay between applying for a mortgage loan from your bank and actually being able to use it. Unfortunately, you may not be the only person hoping to turn a profit on a run-down home or property. You could lose out on the house if another party secures a loan before you do.
Due to that possibility, a hard money loan is a popular funding option for aspiring home flippers since it can often be available within weeks. You might even be able to speed up that approval by speaking to a hard money lender about pre-approval for a loan.
In conclusion, a hard money loan is often an ideal way to quickly obtain the funds that you need to buy a property that you plan to flip. Therefore, you need to be aware of the facts discussed above if you are new to this type of investment and need a better understanding of how this type of loan works.