One of the great features about hard money is that you can get your funding right away. This allows you to be competitive in the real estate market. However, if you find yourself making mistakes in the submission process, you can end up delaying your funds and missing out on great properties.
Let’s tackle some of the most common mistakes made when submitting hard money loans and what you can do to prevent them from happening to you!
Not Getting Pre-Approved
It’s surprising how many people will sign a contract without getting pre-approved for the loan. Before you begin house hunting, take the time to meet with a trusted hard money lender like First Equity Funding. Once you get pre-qualified, you can shop with confidence. In fact, some lenders will send you a proof of funds letter to show that you are a serious buyer.
Not Knowing How Much to Borrow
Private loans work differently than bank loans. With bank loans, you make a small payment each month that counts toward your interest and the money owed back. With private loans, your monthly payments are interest and the full amount is due at the end of the agreed terms.
Why does this make a difference? If you borrow more than you need, you’ll have to pay that back and pay out more in interest. On the other hand, you don’t want to not borrow enough, as this could halt renovations. Before agreeing on how much to borrow, get accurate estimations from your contractor as well as parts of the home that may be challenging to renovate.
Not Working with a Reputable Lender
Unfortunately, there are a lot of loan scams out there, as well as unethical lenders. Choosing the wrong lender can be more than a bad experience. It can destroy your fix-and-flip career. Protect yourself by doing the appropriate research on the private lender.
For example, how long has the lender been in business? Do they have reviews or testimonials from other borrowers? What is their process for accepting loan applications and approving funding? What types of payment plans are available? And, of course, do they have the money to support you?
Not Reading the Fine Print
Always read the fine print when committing to a financial document. The contracts are often written in favor of the lender, and you don’t want to be held responsible for things you didn’t know about. For example, some lenders charge a prepayment penalty if you pay off the loan early. Also, consider the terms of the loan, the interest rate and when your first payment will be due.
Hard money loans help many people out with their real estate transactions. Once you become more financially secure, you will have more capital for your investments and secure positive partnerships that can lead to lower interest rates – win win!