Hard money mortgage presents a rare opportunity for real estate investors: finance their deals 100%. This is something that is not possible with traditional loans. Read on to learn more about this mode of financing and how it can should all of the expenses of a real estate investor in a deal.
First of all, let’s clarify what hard money financing is. This funding is sometimes called private money because it does not come from traditional lending institutions like banks and credit unions. Therefore, it is an unconventional form of funding. It is often known for the wrong reasons. This credit line is famous for using “very high” interest rates and other charges like origination fees. However, it still remains a staple source of funding for real estate investors. The primary reason for this is because it can shoulder 100% of the deal. How does this happen?
To understand how hard money mortgage works, you must know where hard money lenders base their computations. If banks and traditional lenders base the amount of the loan they will give you on your creditworthiness, these unconventional creditors use the collateral as basis. In real estate investing, the investment property is often used as collateral. In the case of rehabbers, what happens is that lenders of hard money financing base the loan on the ARV, or after repair value. As you may know, the ARV is the value of the property after all repairs and improvements have been carried out on the property.
To explain this further, let’s use a $40,000 fixer upper home as an example. If the rundown house is worth $40,000 then and you are considered creditworthy by banks, you are likely to get the same amount from traditional lenders regardless of the ARV – $40,000. However, the case is different with hard money mortgage. Hard money lenders will base the amount they will release on a percentage of the ARV. For instance, if the ARV of the property is $90,000 and lender agrees to release 70% of it, you will get a loan worth $63,000. You will be able to purchase the house at $40,000 and use the excess $23,000 for closing and repairs.
Although rehabbers and other real estate investors have to settle big interests on their loan, they still prefer to use this financing method because they are able to seal deals without spending any personal money. Interested in 100% financing? Go to RehabHardMoney.com now and discover how you can access this funding for your real estate deals.