Should You Get a Hard Money Loan for Renovation & How to Do It?
Whether you are a homeowner looking to increase the value of your property, or an investor who understands the importance of boosting the value of a rental property, or one that you want to sell, one thing is for sure. You’ll need to think about renovations. In other words, you’ll need to invest in those.
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Now, if you’ve already been doing some research on this, you’ve realized that finding a way to finance the renovations is your task number one. Furthermore, you know that banks offer those traditional loans that you could make use of. But, you also know that the approval processes tend to be slow, and the requirements strict, with that particular solution. So, you’re wondering if there are others.
Well, one of the solutions you may have also come across is the idea of getting a hard money loan. Yet, given that you probably haven’t done that before, you’re wondering if it is the right move for renovations. Furthermore, even if you have done it before, you may not be sure whether it is the perfect move, so that’s what you’re here to find out. Thus, below we’ll talk about it in more details, hoping to shed light on the concept and to help you figure out if it is the right move for you.
What Are Hard Money Loans?
First things first, we have to make sure that you understand what hard money loans actually are and how they work. So, to cut right to the chase, this is a short-term loan that is secured by real estate, meaning that the property in question will serve as collateral during the period of the loan. It is typically provided by private investors, or some specialized lending companies. Thus, you can’t get them from a traditional bank.
How do these differ from those traditional solutions, though? Well, for one thing, the focus is not on your creditworthiness, meaning that the requirements for getting this solution are a bit more lenient when compared to the traditional one. Instead, the focus is on the actual value of the property you’ll be providing as collateral. For another, given those more lenient requirements, it is no wonder that the borrowing terms tend to be a bit more expensive than those you could get on a traditional loan. Still, that often seems like a small price to pay for the opportunity you’ll get, especially since the applying and approval processes are faster, so you can get your money rather quickly.
Should You Use Them When Renovating?
It is already clear to you how this solution differs from the traditional one. But, you may still not be sure whether using hard money loans for renovations is a good idea. And yet, this is actually where hard money loans often shine, as the lenders usually cover 100% of the renovation expenses, so you don’t have to worry about money at all.
Another great advantage lies in the fact that you can get the money quickly. So, whether you’re planning to invest in a property you’ve just bought in order to get a better rental rate, or a better selling deal for that matter, or you’re looking to renovate your own home, perhaps with similar goals, you can surely do it quickly if you rely on this borrowing solution. Basically, you can get approved within days, instead of waiting for weeks, or even months, which is often the case with traditional loans.
If you have a poor credit score, you may have already given up on the idea of applying for a loan at the bank, knowing that you will be rejected. Yet, with hard money loans, this is nothing to worry about. In short, even if you’re score is rather low, you can still be considered for the money, because the loan is backed by your property, and your credit score doesn’t, thus, play a huge role in your eligibility.
Moving on, most great hard money lenders offer not only higher amounts, but also more flexible terms. This means that you’ll probably be able to cover the overall costs of the renovation, as well as to get customized repayment terms – those that work specifically for you and your situation. This kind of flexibility is sure to come in handy, especially if you’re an investor looking to fix and flip, or perhaps to rent out a property. Go here to read more on the topic.
How to Get One?
Once you’ve understood the benefits that this solution brings to the table, what you want to do next is figure out how to actually get the right hard money loan for you. And, well, as you may have guessed it, the trick is in choosing the perfect lender. So, what you have to do is carefully research different ones you’ll find, either online or through getting recommendations from other people, and only then make your final decision.
Focus on checking the reputation of the lenders, through reading reviews or talking to past clients directly. Then, remember to check out and compare the actual loan terms, because you want to get the most reasonable solution for your renovation project. Once you’ve compared everything, get in touch with the lenders you believe could be great for you, let them give you detailed offers, and then check which one is best, after which you’ll be ready to choose, apply and get your money.