Hard money lending is an alternative way to borrow money to purchase real estate without going through traditional lenders. In this type of lending, the property itself is used as collateral along with other factors to approve the loan. Hard money lending is often used when borrowers either lack the time to go through the conventional lending process or are unable to attain approval from traditional lenders. Hard money lenders offer a quick and accessible option for real estate investors who need financing but have bad credit.
When it comes to real estate investments, proper planning and calculated steps can lead to significant profits. Hard money loans can be a suitable option for those flipping properties as they are typically used for short-term investments. Experienced flippers may have an edge in obtaining approval for hard money loans, but partnering with a professional investor can also increase credibility with lenders. It’s worth noting that while hard money loans can finance the purchase of a primary residence, it’s advisable to secure a new loan as soon as possible.
We will explore the basics you should know about using hard money lenders in New Orleans.
Ratios
Hard money lenders in New Orleans typically offer low loan-to-value (LTV) ratios, with a maximum usually ranging from 50 to 70 percent LTV. This ratio is determined by dividing the loan amount by the property’s value and indicates to the lender whether the loan falls within the desired range. By setting these ratios, lenders aim to minimize their risk and avoid taking any loss on loans. Some lenders may also assess the property’s after-repair value and offer loans based on that value.
Assets Needed
When it comes to hard money loans in New Orleans, the property’s value is the primary consideration for most lenders. These loans are primarily asset-based, meaning that investors must understand the property’s value to receive approval. Credit history is of little importance to hard money lenders, as they can earn high profits from borrowers with poor credit or from those seeking quick financing.
Terms
If you are a borrower looking for a short-term loan not exceeding 12 months, you can consider using the services of hard money lenders in New Orleans. Such lenders may also offer financing options for rehab costs. These loans may be funded by private individuals or investment funds. However, borrowers should note that they may need to pay higher interest rates for these loans due to the risks involved, such as having a bad credit score and limited options. Down payments of 10, 20, or even 30 percent may also be required.
Costs
When utilizing hard money lenders in New Orleans, borrowers should be aware of the high interest rates that come with the loans, typically ranging between 8 and 12 percent due to the high-risk nature of these loans. In addition to interest, there are origination fees charged in points, with each point being equivalent to one percent of the loan value. For hard money loans, these fees can be as high as 8 points. Additionally, borrowers should expect to pay expenses for appraisals, document processing, and builder’s risk insurance which may be required by the lender.
Penalties
When using hard money lenders in New Orleans, it is not uncommon to face prepayment penalties if you pay off your loan before the agreed-upon terms. Typically, these loans are structured in a way that your payments go towards interest first before you start to pay down the principal. As the loan draws near to the end, you will begin to pay more towards the principal. Hard money lenders take risks, and in the event of a failed loan, they acquire the property and sell it as a way to recoup their losses.
At Omni Home Buyers, we understand all there is to know about using hard money lenders in New Orleans. Our professionals will help you to assess the best path for your financing needs. Omni Home Buyers will answer your questions and listen to any concerns with absolutely no obligation. Omni Home Buyers has inventory available right now for New Orleans investors like you! Call Omni Home Buyers at (504) 399-3155 or send us a message today!