Your dream is to manage income-generating real estate properties instead of managing a stack of papers in an old cubicle.
But you know it takes money to make money. And that’s why you want to know how to get a hard money loan in California.
We don’t blame you. Research shows that over 6% of homes sold in 2016 were the result of flipping–an activity hard money lenders financially support. That’s the highest percentage in 10 years, since before the Great Recession struck.
How exactly do you go about getting a hard money loan to turn your real estate dream into reality? We’ve compiled a comprehensive guide that will teach you how to secure hard money in a few simple steps.
Read on to learn more.
How to Get a Hard Money Loan: What is It?
A hard money loan is essentially a loan that you secure with real estate.
You can get this type of loan through a private investor instead of a conventional lender (a credit union or bank). The terms for these loans are usually a few years.
A reputable hard money lender may engage in a variety of programs, such as:
- Residential loan program
- Multi-family loan program
- Commercial loan program
- Fix-and-flip loan program
The residential program provides a loan for single-family and manufactured homes. It also includes homes with two to four units, as well as bare land.
Meanwhile, a multi-family program covers:
- apartment buildings
- mixed-use buildings
- RV parks
- mobile home parks
- properties with five or more units
The commercial program covers everything that a multi-family program covers, plus gas stations and strip malls. You can even finance a vineyard, bed and breakfast, hotel or campground.
Meanwhile, a fix-and-flip program can help with obtaining a single-family home, townhome, or property with one to four units. Or you can use it for an investor rehab project.
The fix-and-flip option is an especially popular strategy for generating revenue. It involves buying property,, renovating it, and reselling at a higher price than the project cost.
Hard money lenders place more importance on the value of the property than on your credit. Still, your credit is an important factor in whether you get the loan for your desired property.
Of course, if you already own real estate property, you can also use it as collateral for a hard money loan.
What if you’ve experienced a short sale or foreclosure and can’t get a traditional loan from a bank? Acquiring a hard money loan is still possible if there’s enough equity in the property you’re using as collateral.
Why Hard Money Lending?
Knowing how to get a hard money loan is invaluable if your credit score isn’t exactly up to par. Fortunately, with hard money lending, you can still bring your real estate business dream to fruition.
Just be prepared to pay your loans back at higher interest rates. Or you may need a higher-value property to secure your loan.
What’s great about these types of loans is that they can help you make money and build your real estate investing business while you fix your credit score.
How to Get a Hard Money Loan: Do Your Homework First
First, you need to present to your hard money lender the possible value of your desired property.
Because the financing is based on the property’s collateral value, you’ll need to submit several documents. These include repair and renovation contractor bids and construction budgets.
You’ll also need to know what other area properties are valued at. Since the property value is the most important aspect of the loan, you will want to make sure the value is sufficient to get the loan you want.
In addition, if you’ve had any success with flipping or renovating real estate in the past, show this. It’ll earn you extra brownie points.
Second Step: Have a Financial Plan
You need to provide a thorough financial plan addressing the real estate project you wish to complete.
A hard money lender usually funds the majority of a property’s after-repair value or ARV. You’ll fund the remainder of the cost.
Have cash available? Your chance of receiving approval for a hard money loan skyrockets. Meanwhile, if you don’t have extra cash to cover these costs, a lender may place a lien on another property you own.
In addition, you need to be ready to cover closing costs, including lender fees and title company fees. This cash needs to be available before you move ahead with your loan.
Another important consideration is property insurance. You’ll need this to cover damage that your property may suffer during the repair and renovation process.
It is important to get the correct type of insurance. If the property is going to be vacant during the rehab, don’t get insurance that covers a property that is occupied. It may cost less but the insurance company could also deny your claim if there is a fire.
Documentation and Communication
Yes, your property’s value is #1 in the eyes of the lender. But your financial information also plays an important role in getting a hard money loan.
Be ready to submit items such as bank statements to your lender to show that you have the cash available to cover your portion of the project.
But don’t just send them off and twiddle your thumbs while waiting for the lender’s response. Stay engaged in the process by remaining in touch with your hard money lender.
The more interested in the loan you appear to be, the more clout you’ll have with the lender. That means returning calls right away and providing your lender with needed information promptly.
If you drag your feet, you may not achieve your real estate goals.
How We Can Help
If you haven’t taken the plunge into real estate investing yet, you’re missing out on a potentially lucrative income flow.
Fortunately, we offer financing for a wide variety of properties. Better yet, our hard money loan application process is hassle-free.
Contact us to find out more about how to get a hard money loan. You can easily secure the funding you need to make real estate investment your new career in the Golden State.