Dan talks about Hard Money Loan Program Questions
Dan Kapalin, Loan Officer at Freedom Private Money, explains how several distinct loan programs Freedom Private Money offers fits the various needs of our clients. The differences between the types of loans is one of the biggest questions Dan hears in conversations with potential clients.
The three main loan types are Fix and Flip, Buy and Hold, and the traditional 30-Year Private Money Loan. Additionally, we offer Multi-Family, Cash Outs, and Short Term loans but these are somewhat less common.
Hard money loans are based on “ARV”. ARV stands for After Repair Value. A Fix and Flip loan is based on the premise that a client will purchase a home, put money into renovating it, and then quickly sell it for a profit. When “flipping” a house like this, typically the flipper opts to incorporate modern, stylish upgrades and pays attention to detail, such as nice cabinets and countertops, walk-in showers, and higher quality light fixtures and doors. Flipping is a bit of a financial gamble, taking into consideration housing market fluctuations, unforeseen renovation costs, such as a foundation issue, and other such factors.
A Buy and Hold loan is based on the premise that the client is purchasing a property, and putting money into renovations, but generally keeping the renovations to necessities rather than upgrades. Then the property will be used as a rental to produce income. This is a better risk as a loan, because the ARV is higher, and therefore funding can be up to 5% more.
A 30-Year loan is targeted for those people wanting to buy an investment property but are having difficulty qualifying for a loan through a traditional mortgage lender. Perhaps they are self-employed, and therefore their income is harder to verify, or, although they have well-paying employment, they changed jobs within the last year. There are many reasons why a traditional lender will choose not to approve a loan. In addition to this, a traditional lender’s process may take quite a long time to process, and sometimes an investment opportunity is lost during that time. But, because a hard money loan is based on the value of the property, we can very often get these same people approved and funded quickly.
Hard money loans do carry a slightly higher interest rate than a traditional mortgage lenders. But, for Fix and Flip or Buy and Hold, they can be well worth it. One huge advantage is that we WANT the client to succeed with their investment. Our local loan officers are knowledgeable real estate investors themselves, and can guide a client. We can help analyze investment opportunities and we have the knowledge to access renovations costs and potential issues. Try calling your traditional mortgage lender at “Big Bank” — located who knows where — and asking for advice about a plumbing situation that has arisen in your Fix and Flip. Or ask them their opinion on what’s the best local source for flooring in your community. They will not be able to help you one bit! Freedom Private Money’s loan officers gladly help our clients with these sorts of questions. Our local, hands-on approach can be a huge advantage for the novice investor.
All in all, our tailor-fit programs and insider knowledge makes Freedom Private Money a great choice for many.