The truth is that hard money loans are the best friend for a property investor. That is because these loans can offer a flow of money for real estate projects. It does not matter whether you want to close a property or renovate it; you need a hard money loan to get you started. Like any other loan, these loans have interest rates and associated fees. There is a need to understand both the interest rates and fees before seeking these loans.
Experienced property investors understand the ins and outs of hard money loans. If you are new to these loans, you need to know the mechanics of how they work and the overall cost.
Monthly Payments
Hard money loans or bridge loans are short-term loans. You should note that the loans are based on hard assets, such as real estate property. Hard money lenders check the asset and the borrowing power of the borrower. As a result, paperwork is involved, and you need to meet certain requirements. However, requirements are less stringent as compared to conventional loans given by banks. Since they carry a higher risk to the lender, these loans come at a high interest rate. The loan rates vary from one lender to another.
Closing Costs
There are several costs involved when you seek a hard money loan. These include:
Origination Fee – This covers the cost of processing your loan. Usually, the cost is higher than what is offered by traditional lenders, such as banks. Remember that hard money lenders give loans quickly. However, this comes with extra costs and risks. You should note that the hard money lender must pay for staff, office space, and technology.
Underwriting Fees – The lender ought to secure their interest in the property, which is put under collateral. As a result, both parties must agree to the terms of the agreement. This means they need a service of a law firm to create the agreement. Thus, this is an additional cost known as underwriting fees.
Other Costs
There are other costs that are included in the loan. These include:
Extension Fees – Remember that a lender expects you to settle the loan within a given timeline. However, if you are unable to pay within a certain period, you can ask for an extension. As a result, an extension fee is applied to your loan.
Pre-Penalty Fee – If you pay late, you may be penalized. Also, you may be charged for paying early.