What are hard money loans used for?
Hard money loans serve distinct financial needs in Kansas City’s real estate landscape.
They offer quick, flexible funding for investors and homeowners who might not qualify for conventional loans. Here’s a look at common uses:
- Flipping a house: Investors in Kansas City aiming to flip homes can leverage hard money loans for swift property acquisition and renovation. These loans enable quick purchases and timely renovations, facilitating profitable sales.
- Buying an investment rental property: Hard money loans are ideal for buying rental properties, especially those needing urgent repairs. Investors can renovate quickly and start earning rental income sooner.
- Purchasing commercial real estate: These loans are beneficial in commercial real estate due to their fast approval and flexibility. Quick funding is crucial in competitive markets to secure valuable properties promptly.
- Borrowers who can’t qualify for traditional loans: Individuals with significant home equity but poor credit histories often turn to hard money lenders. The property’s value is prioritized, providing access to necessary funds.
- Homeowners facing foreclosure: Homeowners facing foreclosure might use hard money loans to refinance or sell their property, avoiding the detrimental effects of foreclosure on their credit score.
How much do hard money loans cost?
The cost of hard money loans is higher due to their quick, less restrictive funding. Typical costs include:
- Interest rates: These can range from 8% to 15%, depending on the lender’s risk assessment.
- Origination fees: Lenders charge 1% to 5% of the total loan amount.
- Closing costs: These include various fees such as legal, appraisal, and administrative expenses.
- Points: Lenders might require upfront payment of points, which are a percentage of the loan.
You can use online calculators to estimate these costs here.
Alternatives to working with hard money lenders
If you need to leverage your home’s equity but want need an alternative to hard money loans, here are a few options:
Take out a second mortgage: A home equity loan or HELOC offers funds at lower interest rates than hard money loans.
Cash-out refinance: Refinancing your property allows you to pull out cash for new investments, often with lower interest rates than hard money loans. Refinance to access these funds.
Borrow from family or friends: Personal loans from family or friends can be more affordable, offering flexible repayment terms and lower interest rates.
Use a government-backed loan program: Programs from the FHA, VA, or USDA can help purchase homes with lower down payments and interest rates.
Peer-to-peer loan: Peer-to-peer loans through platforms like MeridianLink or Funding Circle provide alternatives to hard money loans, often with different terms.
Specialized loan programs: Look into loans for fixer-uppers or refinancing investment properties, which can replace hard money loans.
Request a seller financing option: Sellers may finance the purchase themselves, leading to lower closing costs and less strict eligibility requirements.
How to buy before you sell
Finding the perfect home in Kansas City can happen at any moment, whether it’s a stunning Tudor or a cozy loft downtown. If you want to buy a new home before selling your current one, HomeLight has an efficient solution to help you achieve your goals.
HomeLight’s Buy Before You Sell (BBYS) program enables you to leverage the equity in your existing home to present a strong, non-contingent offer on a new property. For homes that qualify, you can get approval for your equity unlock amount in less than 24 hours with no cost or commitment. This approach allows you to secure your new home first and then sell your old one without the inconvenience of moving twice.
Here’s how HomeLight Buy Before You Sell works:
The program charges a flat fee of 2.4% of the sale price of your current home. Even with this fee, the potential savings on moving expenses, temporary accommodations, and possibly a better purchase price for your new home can make it advantageous. Plus, HomeLight’s BBYS fees are generally lower than bridge loan interest rates, which are currently between 9.5% to 12%.
