Understanding the Timeline for Hard Money Loans
When investing in real estate, time is of the essence. Some investors need to work fast to get financing to secure the property they want–and hard money loans are a great option. However, it’s important to note that hard money loans are not suitable for everyone. Today, we’ll review who may need one, the timeline for hard money loans, and how to find the right lender for your investment.
Contents of This Article:
- Why Do People Use Hard Money Loans?
- Steps and Timeline for Hard Money Loans
- Find the Right Lender for You Today
Why Do People Use Hard Money Loans?
Hard money loans are short-term, asset-based loans used for real estate investments. They’re typically funded by private investors or Maryland hard money lending companies instead of traditional banks. As such, those who don’t qualify for a conventional mortgage can still get funding through a hard money loan. However, that’s not the only reason people seek out this type of financing.
The timeline for hard money loans is much shorter than that for other loans. Lenders can usually fund them much faster with fewer complications than traditional bank loans. Additionally, they’re generally repaid within a few months to a couple of years. However, before we go over the steps to getting one, here are a few instances where hard money loans are commonly used.
- Fix-and-Flip Projects
- Investment Properties
- Commercial Investments
Fix-and-Flip Projects
Investors who want to make money quickly by fixing and flipping a property may seek out a hard money loan. These loans provide the capital needed to buy a property, make renovations, and sell it quickly. The short-term nature of hard money loans is great for the quick turnaround required for fix-and-flip projects, giving investors the chance to repay the loan entirely once the property sells.
Investment Properties
Investors who don’t qualify for traditional financing but still want to purchase an investment property may turn to a hard money loan. For instance, those with poor credit history, lack of credentials, or a need for more money than a conventional lender allows can benefit from a hard money loan. Hard money loans provide flexibility for investors who don’t have the time to wait for loan approval from a traditional lender.
Commercial Investments
Business owners who want to buy commercial real estate but are unable to obtain traditional financing can use hard money loans. After all, some properties don’t qualify for traditional financing, so alternative methods, like hard money loans, are useful in these scenarios. Additionally, some conventional lenders won’t cover the entire cost of a commercial property, so hard money loans can help those who need extra financing.
Steps and Timeline for Hard Money Loans
Hard money loans can be an excellent resource for investors needing fast financing for real estate projects. These loans, provided by private lenders rather than traditional banks, are secured by the property itself, rather than a borrowers creditworthiness.
Understanding the timeline for hard money loans is critical to making informed investment decisions. Here are some of the key steps involved in the process.
- Loan Application Process
- Approval and Underwriting
- Set Loan Term Duration
- Close on the Hard Money Loan
- Repayment or Exit Strategy
Loan Application Process
The hard money loan application process is typically much faster than a traditional mortgage loan, usually around 1-3 days. It generally starts with providing basic information about yourself (the borrower), the property, and how you intend to use the loan. For instance, you’ll want to provide the following information:
- Property details, like the address, appraised value, and purchase price.
- Proof of funds for a down payment, if necessary.
- Your exit strategy, whether you plan on selling or refinancing the property.
Approval and Underwriting
Hard money lenders care most about the value of the property rather than a borrower’s creditworthiness. So, during the approval and underwriting process, the lender conducts a property appraisal or valuation, verifies your ability to meet repayment terms, and assesses the potential of the property. This usually takes around 3 to 7 days to complete.
Set Loan Term Duration
Hard money loans are short-term, usually ranging from 6 months to 3 years. It’s important to negotiate a loan term that matches your goals and expectations for your investment. In the end, borrowers are expected to either sell the property and repay the loan or secure long-term financing through a traditional loan. That said, if you fail to repay the loan when the term is up, the lending company may foreclose your property or impose extra fees.
Close on the Hard Money Loan
Once you’re approved, closing on a hard money loan can happen very quickly, usually within a week or two. At closing, you’ll sign the loan documents, and your lender will distribute the funds. Essential parts of the closing process include:
- Title insurance verification
- Negotiating and finalizing terms and conditions
- Explaining your exit strategy
- Signing loan documents
- Receiving the loan amount
Repayment or Exit Strategy
Your exit strategy is one of the most important steps in the timeline for hard money loans. As stated above, you should have a clear plan to repay or refinance your loan. For instance, some borrowers:
- Complete renovations and sell the property for profit
- Refinance the property using a traditional mortgage loan
- Use rental income to pay off the balance of the hard money loan
Find the Right Lender for You Today
Knowing when you might need a hard money loan and the process for getting one is important if you’re looking for a quick way to invest in real estate. The timeline for hard money loans is quite short compared to traditional mortgage loans, making them great for investors who need money quickly and plan to sell their investments within a year or two.
If you’re looking for a lender to help fund your next investment property, look no further than Maryland Hard Money Lenders. Our team of lending professionals can help you secure your next property quickly and efficiently. Contact us to learn more about our lending process and how we can help you get started with your hard money loan today!
