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What Is A Hard Money Lender?
A hard money loan is an asset-based loan. One of the biggest factors affecting the approval of a traditional loan is your credit history and income.
Lenders want a candidate that possesses a reputable re-payment history because this demonstrates the consumer’s ability to repay loans.
However, a great credit score and a lot of income is not always guaranteed an approval and the overall process can sometimes take a long time. Hard money lenders utilize a different approach by lending funds based on collateral and therefore, the lender places less emphasis on credit history. Hard money loans are not for everyone, but there are several situations where these loans make sense.
Strategies Using Hard Money
There are different instances when a real estate investor will be more likely to use a hard money loan versus a traditional loan. Real estate investors might find themselves using a hard money loan in the following instances.
- Independent appraisers AVR
- In-house AVR
- Percentage of total costs
- Percentage of the purchase price of the property
Questions To Ask A Hard Money Lender
Based on the best practice of reaching out to multiple lenders, you will want to make sure you have a proper list of questions available to you to vet out which lender is best for you. Here are some questions that you should ask a potential lender:
- Are you the actual lender or just a broker?
- Do you check personal credit? What score are you looking for?
- What project details and documents do you need to make a quote?
- How long will it take to get a quote?
- Where does your money come from? Is this money in your control or do you receive it from a third party?
- What happens if my loan needs to be extended?
- How do you handle interest? Is it upfront, monthly or at the end?
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