Are you interested in flipping houses as a side project? Or what about fixing up a quad-plex to rent out? Investing in real estate is often one of the safer forms of investment, and one in which you can see a good return on your investment quickly. However, the initial financing isn’t as straightforward as purchasing a home to live in. If you’re considering real estate investing, a hard money loan may be the best option for you, but it may not. Here are few of the most common times to use a hard money lender:
When Time Matters
A traditional mortgage can be used for investment properties. However, if you need to get your financing squared away quickly, that traditional mortgage isn’t going to be the best option. For example, you may not have a lot of warning before a foreclosure comes on the market or when a home is going up for auction. Hard money lenders can often give you initial conditional approval for a loan after a quick five- or ten-minute conversation. That’s a good deal faster than even a pre-approval from a traditional mortgage lender.
When You Need To Negotiate
It’s common to have multiple offers on a house, especially with the way the housing market has been in Denver and along the Front Range lately. When you need something to push your offer ahead of others, a hard money loan can give you a leg up. A traditional loan can take weeks or months to process because the underwriters will be combing through financial records carefully. Hard money loans, on the other hand, rely on the property itself as collateral, so they can be underwritten in a lot less time. The faster processing time means your loan can be approved and money in hand much more quickly. It also means you can use that shorter closing time to motivate the seller.
When You Need A Stronger Offer
This ties in heavily with the previous reason, but it’s different enough it warrants mentioning. A hard money loan often makes an offer stronger because the financing isn’t likely to be pulled at the last minute. The traditional loan process relies heavily on a borrower’s financial history and debt-to-income ratio to underwrite the loan. If something happens to alter the borrower’s finances — say, they make a big purchase like a car — before the loan is finalized, that can be enough to change their financial situation and cause the lender to pull the financing. Hard money loans use the property as collateral, so the funding is far less likely to be pulled at the last minute. This will help your offer look stronger than others using traditional financing.
When Your Financial History Isn’t Perfect
If you’ve ever gone through the traditional mortgage process before, you know that your financial history will be thoroughly scrutinized. If you have a less-than-stellar credit score or other dings to your financial history that put you outside the bank’s qualifying criteria, getting a traditional mortgage can be difficult — and may leave you with an interest rate that’s through the roof. Hard money lenders don’t care nearly as much about your credit score or financial history. They’ll use the property as collateral, so even those will not-quite-perfect credit history can get approved for a loan.
When You Want To Make Multiple Deals
It’s pretty common to take the proceeds from one flip and turn around and re-invest that money. However, doing so can be limiting. Working with a hard money lender gives you the opportunity to invest in multiple properties without waiting for one project to be completed and sold before moving on. Many traditional mortgage lenders don’t have the flexibility to write multiple loans in a shorter span of time; hard money lenders, fortunately, can be a lot more flexible about issuing multiple loans.
Want to learn more about how the process works? TABS, LLC are hard money lenders in Denver, but we work with lenders from Colorado Springs to Fort Collins and across Colorado. Submit an initial application online or give us a call to learn about the different loan options we offer and see how we can help with your next real estate investment project.