Not everyone is as familiar with hard money loans in Arizona as they are with traditional lending. However, these private loans can provide a benefit over other methods of lending. Before you explore this option for your business ventures, it can be beneficial to understand the answers to these common questions.
What Makes Hard Money Loans Different?
Hard money loans utilize the value of the property itself as the only collateral. This means the buyer’s assets and credit history have little to no bearing on their ability to get the financing they need. In addition, these loans come from private lenders who can set their own requirements.
How Do Interest Rates Vary?
In general, the interest charged on hard money loans is often higher than traditional loans because they are meant to be a short-term solution. However, underwriting and other costs are typically lower. These loans are sometimes used as interest-only loans with the principal due at the end or may work more like traditional loans with principal and interest factored into the payments.
How Does the Application Process Work?
Applying for hard money loans requires submitting a request to the investor themselves, rather than a banker who doesn’t have the final say. This can give you leverage for negotiations.
What Loan to Value Ratios Affect the Loan?
For the most part, loan to value ratios for hard money loans in Arizona fall between 50 and 65 percent. This rate can be based on the actual purchase price of the property or the prospective value of the property after repairs and improvements are made, whichever is higher. Banks typically use the lower of the two numbers for traditional lending.
How Long Do These Loans Last?
Hard money loans are designed to be used for shorter term solutions than traditional loans. Most of these loans last as little as six months but can be used up to two years when needed.
How Much Do They Cost?
One of the biggest concerns is cost. Buyers are typically required to pay for any underwriting services, including third-party appraisals and environmental reports, among others. However, it’s important to understand how much these fees should be to avoid lenders who are only looking to scam business owners.
Does Borrower Credit Matter?
If you’ve ever obtained a traditional bank loan, you know how important your credit is to obtaining a low interest rate and the funding your need for your business ventures. With hard money loans in Arizona, your credit will have little to no bearing on whether you will qualify for the loan. Instead, the loan will be based more on your character and the value of the property.
Do You Need Money Down?
In most cases, you will need to put some money down to mitigate the risk the lender is taking on. It also ensures buyers are more invested in the property and are less likely to just walk away and not pay the loan back.
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