Thinking of buying a fixer-upper? Or, perhaps you want to invest in a rental property? Whatever you want to do as part of your real estate investment strategy, what is often for sure is that you will absolutely need to act quickly. Meaning, you will need to grab and close a good deal before someone else does, as there’s no doubt that this is a highly competitive market.
If you’re thinking of investing in a rental property, read about the risks and the rewards first: https://www.getsmarteraboutmoney.ca/learning-path/real-estate/investing-in-a-rental-property-the-pros-and-cons/
Anyway, to be able to act quickly, you will, naturally, need to get the necessary money quickly. And this, among other things, means that you will have to get approved for a loan quickly. Yet, not all loan options offer that kind of speed and flexibility, which is where hard money loans stand out as rather popular solutions.
Given that they are asset-backed, which pretty much means that they are secured by the actual property you are buying, no credit check is required. And, since no extensive credit check is required, this means that the approval process is sure to be quick. As well as that you can get the opportunity to invest even if you don’t have a credit history yet, or if your score is quite poor for that matter. On top of that, these loans are short term, meaning that you’ll be able to get out of the debt rather quickly.
Anyway, where there are advantages, there are also disadvantages. And, when it comes to hard money loans, their disadvantage lies in the fact that the interest rates are known to be higher than those that you can get for a traditional mortgage. Why is that, though? And what rates on hard money property loans can you actually expect? Let’s answer those questions. Learn more about hard money loans.
Why Are They Higher?
Let us begin with the question of why. Why are those rates higher than those associated with traditional mortgages? Well, several general reasons, but they all come down to one thing – the risk for the lenders is higher. For one thing, no credit check means that they will trust you without it, which is a huge risk in itself.
But then, there are some more specific factors that affect the rates as well. Such as, for example, the actual condition of the property you are buying, as well as the type of property. Some types are riskier than others, and then if the property is in poor condition and needs renovation, that is sure to drive up the rates as well. Apart from that, there is your experience as the borrower, as well as the general market trends, all of which will have the ultimate say in the rate you will actually get.
Of course, we cannot fail to mention the fact that the rate will depend on the actual lender as well. What does that precisely mean, though? Well, in the simplest words possible, it means that the lender you choose will have the final say in the rates. Furthermore, it means that you can shop around, look for different offers from different lenders, until you find the perfect solution for yourself.
What Rates Can You Get?
Okay, you get why these rates are generally higher. But, you now want to get into the specifics. In other words, you want to know specifically what kinds of rates to expect on hard money property loans when you decide to use them to your advantage? As you may have imagined it, there is no straightforward answer to this, because of all the factors that can affect it, and that we have talked about above.
Yet, we do have something to say. While the rate can differ based on those various factors we have talked about above, there is something you can expect in general. In short, they typically range from 8% to 15%, depending on everything we have mentioned previously. To figure out what kind of a rate you will get, it would be best for you to assess your specific situation, and talk to some lenders directly.
How to Get a Good One?
Sure, the hard money interest rate will be higher than the one you would get on a traditional mortgage. We have also explained what that depends on, and what the actual range you can expect is. But, all of this doesn’t mean that you cannot find and get a good deal for yourself. Because, yes, you can.
What you have to do, apart from choosing the right property, and building credibility over time, is find the right lender. Not all of them will offer the same deals. So, you should take your time to shop around and get more offers, so as to compare them and figure out which particular deal could work for you best.
