3 Essential Steps To Take Before Getting A Hard Money Loan

If you’re investing in real estate but you’re hindered by your current financial situation, a hard money loan can be the perfect solution. Designed for real estate investing, hard money loans let you quickly access the finances you need to purchase a property, with the idea that you’ll pay off the loan by either selling or refinancing it. 

Never applied for a hard money loan before? Don’t be so quick to sign on the dotted line—there are a few essential steps you should take first. 

Step 1: Check The Numbers First

Knowing that you can finance your project with a hard money loan can make you feel pretty invincible. But it’s still really important to proceed with caution—if not even more important, given that you’ll only be able to pay off your loan if your project runs successfully. 

So, before you commit, take a step back and make sure the numbers stack up. Weigh up the purchase price, refurb costs, and potential resale value of the property you’re interested in, and triple-check that you can afford your project so you’re not stuck with a loan you can’t repay.

Step 2: Make A Plan Of Action

Once you’ve weighed up the costs and determined what you can afford to spend, your next job is to draw up a clear plan for paying your hard money loan back. Even the best hard money lenders, like Hard Money Lenders Arizona, offer short-term loans, usually spanning six to twelve months. 

That means you need to know exactly how you’ll exit that deal before signing anything. Will you flip the property and sell? Refinance with a traditional lender? Or something else? The lender won’t hesitate to take your property if your plan falls apart and you miss the deadline, so don’t assume you’ll figure it out later..

Step 2: Prepare Your Paperwork

With the logistics out of the way, you’ll also need to do some paperwork. A big advantage of hard money is that it’s faster financing than a traditional mortgage, but that doesn’t mean you can apply for a loan with absolutely no background info to provide to the lender. 

Most lenders will want to see your property’s purchase agreement, along with a detailed scope of work if you’re renovating, and sometimes even your proof of experience. Some might also ask for tax returns or bank statements, so make sure you’re prepared in advance so you can close faster.

Step 3: Get Your Cash Ready

You’ll also need to bring some of your own cash to the table. Yes, this form of financing does reduce the pressure to front a property purchase with your own money, but hard money loans don’t cover everything. 

You’ll likely need cash for a down payment, as well as holding expenses like taxes and insurance. If you’re counting on a loan to handle every penny, it’s probably not right for you.

Hard money gives you speed and access when you need it most, but it’s not going to be the right solution for everyone. Make sure you go in with a full understanding of what you’re signing up for, and follow these steps to prepare everything you need in advance.