How to Use Hard Money Lenders in Arizona
How to Use Hard Money Lenders in Arizona?
You really never think you’ll need a hard money lender until you need a hard money lender. If you’re a real estate investor then you know how important hard money lenders in Arizona are to procure investment properties. However, for the typical home buyer, a hard money lender is often mysterious and even a little bit spooky.
Allowing a hard money lender in Arizona to assist you in buying your home is an important investment decision. Hard money loans should never be thought of as the loans of “last resort”. They are an investment tool. How and when to use that tool correctly is the key takeaway I will be discussing.
What Is a Hard Money Loan?
Hard money loans are a flexible way for home buyers and investors to purchase real estate quickly. Similar to the traditional conforming loans, hard money loans may be used for commercial and residential properties. We will only discuss the use of hard money loans for residential properties here.
Hard money lenders in Phoenix AZ will tell you that hard money loans are asset based loan programs. In other words, this type of loan is secured by real property. It is important to remember that hard money loans are not funded by your local or national bank. Rather, they are from private investors with the funds to loan out.
Hard money lenders offer rapid funding compared to those funded by traditional mortgage brokers. Banks loan money to you based on your credit history and income. The better your credit history, the less risky you are to a lender. However, this can take a painfully long amount of time – even if your credit scores and income are outstanding.
Obtaining a hard money loan is a much different process. Hard money lenders in Arizona secure the loan with collateral. In many cases, the collateral would be the home you’re currently purchasing. If something goes wrong with your loan, the hard money lender will sell off your collateral and retrieve their money.
Another unique feature that a hard money loan has is its short duration. Most borrowers can expect to pay off the short term loan anywhere from one month to five years. Borrowers don’t want to hold on to these loans very long because of their high interest rates.
How long does the hard money lending process take?
Many hard money lenders in Arizona have the immediate funds available to approve a typical loan within 24 hours. Depending on who their investor is, funds can be available to the borrower under seven days. The lender does not need to sift through your application asking for bank statements, credit reports and so on. They are interested if your collateral can properly secure the loan.
Many hard money lenders forgo the appraisal and simply drive past the collateral to verify it exists. All hard money lenders in Arizona will have a maximum debt to income ratio set anywhere between 50 to 70 percent. This requires the borrower to bring in a larger down payment. Your private money investor is taking a huge risk and needs to be able to sell the collateral easily.
What makes you a perfect candidate for a hard money loan?
You should be prepared for a LARGE down payment. Thirty to Forty Percent should work for many hard money lenders. If that’s not enough for a particular lender, you should shop around for a less aggressive lender.
Most home buyers want to hold onto their homes for at least seven years. Since hard money loans are temporary, you must have a solid exit strategy. One such strategy would be to arrange new financing with a traditional lender.
Bad credit is another popular reason home buyers go with hard money loans over a traditional loan. Recent foreclosures or bankruptcies can make you a most unwelcome guest at your local bank. Fortunately, traditional FHA loans will provide you with a second chance to buy again after two or three years.
What Does a Hard Money Loan Cost?
Most costs occur as up-front points you pay when your loan is processed. It’s typical for a borrower to pay three percent or more in fees. The lender will also charge you a higher than average interest rate to maximize their profit. For example, if a traditional lender charges 4 percent, a hard money lender may require a 10-15% rate.
Based on current federal laws and oversight compliance rules, hard money lenders have special financing procedures for owner occupied residences. There are instances when hard money lenders will refuse to offer financing to borrowers because of certain lending restrictions.
Long-term real estate loans are similar to hard money loans because the amount is amortized for thirty years. This creates an affordable monthly payment for the borrower.
How do I find a Hard Money Lender in Arizona?
The number one source in finding a fair, trustworthy private hard money lender is to work with a local Realtor. Realtors have ongoing relationships with experienced investors who use hard money lenders every day. If you believe a hard money loan is right for you, feel free to contact me for a referral. I purchased a primary residence using a private investor in 2010 and would love to share my experience with you.
Other names for hard money loans are: fix and flip loans, bridge loans, rehab loans and private money loans.
ADDITIONAL HARD MONEY LENDER RESOURCES
- What is a Compliant Private Consumer-Owner-Occupied Loan? via Pacific Private Money, Inc.
- Dodd-Frank’s Effect on Hard Money Lending via Mustafa Kadri, Esq.
- Arizona Hard Money Lenders Dirctory via FitSmallBusiness.com
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About the Author: The above article, How to Use Hard Money Lenders in Arizona was written by Troy J. Elston, a licensed Realtor at West USA Realty, the premiere real estate brokerage based in Peoria Arizona. With over 16 years of experience in the real estate industry, Troy produces stunning results for home buyers and sellers. If you're thinking of BUYING or SELLING a home in the Phoenix Area, Troy would love to share his knowledge and expertise with you.
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