Most people rooting for hard money loans fail to consider the basics. The fact that they can obtain funds instantly and invest in the best real estate deal compels them to get these loans. This may drag in some pretty severe consequences later. That is why we recommend our readers to know the essentials.
You must understand how this loan works and how can you refinance the hard money. Given that you get this loan from private investors, you should be extra cautious when making the deal. Chances of losing investment or being cheated are quite high.
Remember that this type of loan comes with a high-interest rate of around 9- 15 % and the payback period lasts for 12 months. In some cases, you can get an extension from 2 – 5 years. Besides this, the hard money loan may tag along with a prepayment penalty. So it’s wise to go over the terms and have an intensive session with the lender.
You must also acknowledge that hard money is only a temporary fix. You have to refinance the loan at some point. Hence you must set out a way of doing that.
Here are a few options to refinance the hard money loan:
Fixed Mortgage
In the majority of the cases, people take hard money loans because they want to invest in property. It is the best option you have when you are about to obtain a foreclosure on your current home and do not qualify for a traditional mortgage.
Scoring hard money loan provides you a reasonable time frame to improve your credit score and pay off the debts. Now you can quickly refinance into a conventional investment property loan or fixed mortgage. It asks you to pay a specified, low amount regularly.
An improved reputation with the collection agency also increases your chance of getting a good fixed mortgage. This makes it easier to pay off the hard money loan.
Home Equity Loan
Generally, home equity loans follow a fixed payment schedule. They have minimal interest percentage. For instance, the average rate for a 15-year fixed-rate home equity loan is 5.76%, at present. It is the first choice of most real estate investors out there. But you must have a good credit score, financial health, and sufficient equity in your home to get an approval for this loan.
If not, it’s natural to go for hard money loans. Just search for “hard money loans near me,” and there will be a long list of lending agencies that you can go for.
Then after a few years, you can get the permit for home equity loans. Make sure you improve your credit scores during this period. You can now refinance the hard money loans.
Subprime Lending
A subprime loan carries a higher interest rate than the conventional lending method. The borrowers of this loan are people with low credit scores and history of debt defaults. Although this stands to be one of the ways to refinance the hard money loans, you must get acquainted with the details of this lending method. Scrutinize the current rates in the industry.
You should only go for it if the deal sounds reasonable enough. Get the facts straight. Like you must know that from 1947 to 2019, the prime rate has fluctuated from 1.75% to 21.5% to 5.5%.
It is quite likely that a traditional lender will direct you towards a subprime lender. They both work in conjunction with each other. The former provides you with alternative loan strategies like an interest-only mortgage and adjustable mortgage.
The best part is that it gives you a prolonged solution, despite the high-interest rate.
Cash Advance
You can also refinance by getting a cash advance loan for the balance. But this varies from case to case. If the property owner is clear, the cash-out loan amount maybe about 45% of the value of the property. And in some situations, there is a mortgage on the property. That is when additional funds according to paid mortgage and its value apply.
Final Thoughts
You must seek an exit strategy from hard money loans if you believe that your economic condition is out of the woods. There are plenty of financial experts who are strictly against this type of loan.
Another integral element to mention before we sign off is — you can seek professional advice to refinance a hard money loan. Undoubtedly, experts’ advice saves you a lot in the long run and minimize the risk. There are agencies and legal advocates who deal primarily in this sector.
We hope this blog enabled you to get some helpful insights into the refinancing process of hard money loans. Still, if you have any queries or want to add something up, feel free to let us know!