Hard money lending is a form of real estate finance that bypasses the banks and approves financing, taking the property as collateral among other factors. This way, the borrower will prefer this route when they either do not have the time or cannot get approval from conventional channels. Therefore, hard money lenders provide an alternative solution much quicker than traditional ones.
Real estate investment can be really lucrative if done just right. It’s all about buying at the right price and approaching every step calculatedly from acquisition to the close after rehabbing the property. Hard money loans will, no doubt, be much more helpful for those who engage in flipping real estate since hard money loans create the perfect environment for short-term projects. As an experienced house flipper, it might be rather easy for you to get a hard money loan. But even if you’re a novice, the partnership with an experienced investor can add credibility to your application in front of lenders. Even though technically it’s possible to use these loans for financing of a primary residence, it’s generally advisable to secure a traditional loan as quickly as possible.
In this article, we will break down the essentials of using hard money lenders in Tulsa.
Loan-To-Value Ratios (LTV)
Hard money lenders in Tulsa use low LTVs typically, anywhere between 50% to 70%. That is what limits the loan amount to that particular percentage level of the value of the property. The LTV ratio helps lenders determine whether the loan fits within their tolerance level of risk, where they would not take massive losses upon borrower default. Certain lenders also consider the ARV or after-repair value of the property and give loans out based on those figures.
Asset-Based Lending
Hard money loans are essentially asset-based. This would mean that the value of the property is extremely important in securing the loan, while your credit history may not be as relevant. This can be beneficial for investors with bad credit or those in a need for urgent financing, since hard money lenders tend to make a profit off higher interest rates that are associated with the convenience and risk of fast funding.
Loan Terms
Hard money loans are generally short-term and do not usually extend beyond a period of 12 months. Some may provide up to rehab cost financing, and they might be provided by private individuals or investment funds. Large down payments of between 10% and 30% are common. Higher down payments reflect the increased risk associated with these loans; hard money lenders often finance for those with limited credit options.
Costs And Fees
Hard money loans in Tulsa are high-risk loans, and as such, their interest rates are higher, usually coming in at 8-12%. Besides the interest rates, there are origination fees, usually in points. One point equals 1% of a loan value, and hard money loan origination fees can be as high as 8 points. Other costs to consider: appraisal fees, document processing fees, and builder’s risk insurance.
Prepayment Penalties
Prepayment penalties may be charged by most hard money loans in Tulsa if you pay off sooner than what was agreed upon. Many of these are set up to allow only interest payments at the beginning, with the end bringing the start of principal payoff. In case a borrower defaults, then the lender has recourse to take ownership and sell the property to recover losses.
Direct, in-depth knowledge concerning hard money lending in the Tulsa area is important at Sell My House Fast Tulsa. Our professionals can assist you in weighing your financing options and providing advice on the right direction for your real estate investments. Feel free to contact us with no obligation to ask questions or state your concerns. We also have a variety of investment properties available now! Contact us today at 918-200-9185.