One of the major downsides of a Hard Money Loan is that it is one of the most expensive lending options out there for real estate investors. Despite all the benefits of low approval turnover rates and minimum documentation, there are a lot of risks involved with the private lender as they are handing out their money to strangers in the hopes that their real estate plans are successful. As such, hard money loans often have high interest rates and a comparatively higher down payment ratio. However, in spite of that, is there still a way to get a Hard Money Loan for cheap? Can there exist an affordable Hard Money Loan?
To start, one of the most essential elements in getting a Hard Money Loan approved is having enough money or capital available to pay the down payment. This can come in the form of cash, cash equivalents, or equity tied to the property itself to which it can serve as collateral for the private lender. However, a key aspect to note is that the down payment is not exactly a set figure, it is a proportion of the property’s appraisal value. This means that how much you pay in the down payment is determined by how much the property is valued at.
Most Hard Money Lenders set the down payment rate at about 25-30%. That’s an LTV ratio between 70-75%, meaning the lender will cover at most 3 quarters the total cost of the acquisition. Stratton Equities reflects this model as we offer LTV ratios up to 75% for Hard Money Loans. Additionally, some Hard Money Lenders might even set the down payment rate even higher if they delineate between the different types of properties. For instance, the down payment rate for commercial properties can be as high as 40% compared to residential properties. All of which is based on the value of the property, what the lender sees as the property's future, and what the investment project will ultimately entail. So, keep that in mind when you are searching for an affordable Hard Money Loan.
With the LTV ratio in mind, if you want to acquire a Hard Money Loan for less, your best bet is to look for cheap, small properties that are not highly valued within the marketplace. If you are emphatic about real estate investing, there are some other options and tricks to be aware of. With Hard Money Lenders, your credit score is also going to be important, and the higher your score is the more likely you will be accepted and the smaller your LTV ratio might be.
So, can you acquire a Hard Money Loan for less than $50,000? Well, yes and no. If you have a great credit score and the property in mind is valued at less than $200,000, then you have a chance at getting an affordable Hard Money Loan. However, chances of finding those types of properties, lenders, and benefits are not extremely high and investing $50,000 of your own money might not even be the most affordable rate for most americans. Ultimately though, the real estate market lives on and there exist many options outside of Hard Money Lender that might be a better fit for those looking for something more affordable.
For more information on Hard Money Loans, visit Stratton Equities today.