The Truth About Hard Money Investment Funding
make payments while they are rehabbing or remodeling an investment property.
Will creditworthiness impact hard money financing? Probably. The lender will check your credit, but your score will matter less than any bankruptcies, foreclosures, charge offs or collections. In other words, they are looking specifically for a realistic ability to repay the loan. Investors want to make money, they don’t really want your property. But collateral does matter. In fact, when it comes to hard money lending, collateral is a primary concern.
Regardless of credit and collateral consideration, investors should expect to put some money down. Lenders need to know you have the resources necessary to make repairs and cover the costs of the loan, as well as any “yeah, buts” that come during the process. Expect to pay the associated fees as well as the origination points before closing. Lenders typically believe an investor who cannot afford to close cannot afford this sort of loan.
Because they are strictly for investment and rehab, hard money investment loans typically begin at three months and extend no longer than twelve months. Special arrangements and extensions can be found, but they will require additional fees and other considerations.
In addition to your financing fees, typical fees include the title policy, insurance and appraisal. These fees can total anywhere from several hundred to a couple thousand dollars.
Can an investor secure funding for necessary repairs and remodeling? In a word: YES. Funding sources will typically not pay for repairs up front. They will require that you fill out a “Draw Request” form to detail the completed repairs. You will also need to submit copies of the invoices from the contractors or subcontractors. Once the work has been completed and inspected, those draws can be dispersed.
CAVEAT: It bears saying, though most investors will be aware of this, as with all funding sources, loans must be adequately collateralized to receive funding.