There are many ways to get money for investing in your home foreclosures. You can use your own cash, post investor-related ads in the real estate section of your local newspaper, apply for a personal loan, use a credit card (I will discuss this further in another article), take out a mortgage loan, or use a hard money lender. In this article, we will discuss the whys and why not's of using hard money.
What is a hard money lender? A hard money lender is a certain type of lender that loans money on the future equity of a refurbished property. Unlike conventional lenders, these lenders do not care what the how is presently worth. All they care about is what the house will be worth after it is fixed up and ready to sell.
These lenders make it easier for entrepreneurs with bad credit and/or no money to make investments in home foreclosures.
Some things to know about these lenders:
1. Hard money loans are based on the value of the property after the house is fixed up as stated before.
2. These loans are generally short-term loans; from 3-6 months.
3. These loans can close in as little as two weeks.
4. These loans do not have as much
red tape conventional loans.
5. These lenders give you the money to fix it up in a draw-type system.
6. They may loan as 65% of the after repaired value. For example, a house for sale for $20,000 in as-is condition and after repairs it would be worth $60,000, they would loan you as much as #39,000, which leaves about $20,000 to repair the house.
7. They usually do not require a down payment. The conventional lenders almost always require at least 20% down with good credit and may not even lend to borrowers with less than perfect credit, which leads to #8.
8. They will give you a loan even if you have bad credit, no pay stubs, or no tax returns. This opens the door for many more entrepreneurs.
Here is an example of how a hard money loan would work:
You find a house. Purchase price of $43,000. After repair value of $88,000
You receive a 60% hard money loan of $53,000, leaving $10,000 to do the repairs needed to bring the house up to live-in condition.
You get bids for the work needed. You can do it yourself to save money, but sometimes; there are less headaches and leaves your time free to look for more deals if you have someone else do the work.
So, you get bids.
Bids: Contractor A: $12,000
Contractor B: $9,000
Local handyman: 100 hours x $20/hr. = $2,000 + Materials, $2,500
=$4,500
You choose contractor B. You decide that you do not want to do the work yourself or have to supervise a handyman. Your time is better spent searching for new investments. Now, you ask, how do you pay the contractor? Easy. When the work is completed the hard money lender will send out an appraiser to make sure the work is done. When he verifies that the work is done, the hard money lender will cut a check for the contractor. It is that easy.
Using hard money is how people with bad credit and no money make fortunes in real estate investing.
KimberlyAnn
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