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Private Money Tips for Borrowers

Hard money loans can be a game-changing reality in terms of securing loans. Unlike traditional loans where money is sourced from banks, hard money loans come from private businesses and investors. This means borrowers can largely avoid the bureaucracy and strict guidelines surrounding conventional loans. With this, potential borrowers can find a wide breadth of opportunity for securing the loan they need, in the timeline that fits their timeline. When considering hard money loans, knowing certain tips will leave you prepared for your hard money loan journey. 

7 Private Money Tips for Borrowers

Below are some well-known and lesser-known facts about the ins and outs of hard money borrowing.

  1. Quick Approval: Unlike conventional loans that need a strict approval process, private loans operate on a much quicker timeline. Personal financial history does not matter as much as the hard asset, or the property itself, along with funds placed on the down payment. In some cases, a private money loan can be approved within 48 hours, providing instantaneous capital for whatever your project needs.
  2. High Interest Rates: If you are planning on going the hard money loan route, be prepared for high interest rates. Since there is less focus on personal financial background, investors need to offset the risk with high interest rates. If going the private money route, be prepared to pay high interest within your repayment plan.
  3. Extended Financing Options: One thing borrowers may not be aware of in terms of their financing options is that for owner-occupied loans, 30-year fixed financing is an option. If you are considering a hard money loan for a private property, but do not have the capacity for a traditional loan, this can be a great alternative, especially if not selling a property right away.
  4. Better Downpayment, Better Loan: Hard money loans are not full financing due to the riskier nature of the venture. In fact, investors are more willing to lend when they see borrowers have a stake in the game. For first-time hard money borrowers, this hovers around 20-30% of the property value. For more experienced home flippers, this rate may shift depending on experience.
  5. Loan-to-Value Ratio (LTV): With the downpayment in mind, another term to be aware of is the loan-to-value ratio of the property. This ratio is emblematic of the amount of the loan to the value of the property. This is one of the metrics investors use in determining whether to invest in the borrower. The lower the LTV, the better the chances of securing the loan.
  6. Prepayment Penalties: If you are borrowing for a property in which you are residing, ask lenders if their loans contain prepayment penalties which will hurt you if you pay off the loan early. Prepayment penalties are not allowed in owner-qualified loans unless used for business purposes.
  7. Wide Opportunities: The final tip to remember is that the sky’s the limit when it comes to hard money loan purposes. Whether using it for an owner-occupied property, pay for repairs, finance a commercial property, or house flip, hard money loans can be your key to successful real estate ventures. With proper planning and loan repayment, JMJ Funding can help you reach your lending needs by matching you with right fit investors to make your goals a reality.

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