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How to Make the Most of a Hard Money Loan

Being approved for a hard money loan is an exciting opportunity. By now you probably know how you plan on using the money, and if not, you have plenty of options from business costs to real estate investing. But once you have a hard money loan, you want to make sure you are maximizing its value. Here are a few best practices to make sure you are minimizing your risk and maximizing return.


Set up autopay

Once you know how much your payments on the loan will be, set up autopay. The occasional missed payment is not the end of the world, but it could appear on your credit history. You could also see your interest rate go up. In general, hard money loan interest rates are higher than a traditional loan. Hard money lenders depend on these measures to protect themselves and their businesses. While that difference may not be that much given the short loan repayment period, minimize any hassle by setting up automatic payments and focus on your business instead!


Try making biweekly payments

Depending on the loan period (let’s say between 1-3 years), you may want to try setting up biweekly payments. The concept is simple and popular for paying off other loans as well: pay your monthly payment every two weeks instead of every month. You will end up making more payments per year than you would if you just pay monthly.


Put found money to use

When you are setting up a budget for your business or investment property, you may overestimate costs. This is great news for when you are paying off a loan because it means that you can use that extra money, or found money, to pay off the loan faster. When you come across “found money,” use it to pay down the loan faster instead of using that for costs outside the budget. You will cut down the cost of interest and your lender will appreciate it.


Stick to the plan

As you make a plan for how you will use your hard money loan, stay sharp and stick to your goals. It may be tempting to exceed your pre-approved amount, especially as you discover new opportunities and deals. But even a “good deal” can cost you if it wasn’t already in the budget. Look for deals that will make you money and not cost you more in the long run. If you are funding property, make sure you do your own thorough research on how much the property will cost to flip or be worth after the flip. Do not just rely on the realtor. Unexpected costs or costs that were not in the original plan could stymie progress. Instead, stick with the plan that you presented to the lender.


Pay it back quickly

It is in your best interest to pay back your hard money loan as quickly as possible. Lenders know that they are taking on risk when they offer loans, which is why they usually do not base the loan on the full value of the property. This is also why your interest rate will be higher than with a traditional loan. Paying your loan back quickly could save you thousands of dollars.


Keep reserves on hand

For as well as you may plan and budget, unexpected events can occur and unforeseen costs arise. Most lenders like to see that you have cash reserves on hand to cover surprise costs. This is especially true when restoring or repairing property. One repair frequently reveals the need for others, especially when the property is a flip. Keeping reserves on hand will prevent you from running out of money on the loan.


Pay promptly

Like any other loan, paying your loan promptly each month will help you avoid extra fees and a higher interest rate. If you are concerned about making payments on time, consider changing the due date on your loan to something earlier in the month.  Another great way to always make payments is by setting up autopay. Just be sure that you always have money in your account so  that payments go through.


Hard money loans are a great option for funding investment properties and promoting businesses, especially when you are prepared to use them well. When you pay back your loan on schedule and according to plan, you can get more value from your property and grow your business without spending more than necessary. Speak to one of our experts to see if this is the right option for you and your next investment.

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