What are your Exit Options when Applying for a Hard money Loan

When acquiring real estate through hard money loans, you need an exit strategy. Most hard money lenders offer a short payment period (9 months to 3 years ) with higher interest rates (7.99 to 12 percent) than traditional lenders.  It is, therefore, important for you to know what you are walking into and to plan on how you will repay the loan beforehand.

Some of the most common lender profiles with solid strategies include:

The Experience Real Estate Investors

Real estate investors with experience in house flipping can often predict early how long they will spend on a property. This entails any related eviction, renovations, property marketing and actual sale of the property. These borrowers use their experience in the market to plan their loans, and will often repay the loan before it is due.

Owner Properties with a Short Sale

Private homeowners who currently occupy the property and have a short sale or foreclosure in the recent past (up to three years) take out hard money loans with the confidence that they can refinance the home through conventional lending as soon as the short sale date arrives. Often, they have the three-year anniversary date in mind, and they will start the refinancing process with a traditional lender at least a month prior to the date.

Borrowers working in Self-Employment

Self-employed borrows who declare a small income in their income tax returns, and therefore fail to qualify for conventional loans often apply for hard money loans with the following conditions in mind:

• They will take out the loan, and then start filing their tax returns with a higher income for at least two years
• The will look for a portfolio lender who is willing to consider the liquid and real estate assets, net income and business revenue and is willing to put some deductions on the AGI (Adjusted Gross Income)

Unconventional or Hard to Find Down Payment Funds

When looking for additional down payment, if it comes from a friend and not a relative, it does not qualify as a gift. In conventional loans, gifts from family members are generally accepted, however, gifts from friends are classified as personal loans, which then disqualify you from accessing a conventional loan. Once you understand this, you can look for ways to use the gift and work the system to be able you to access traditional financing down the line, at a lower interest rate.

Conclusion:

As a home buyer or real estate investor, you must have a solid exit strategy. With the options above, you can choose the category that suits you best and learn how you can leverage the available opportunities as your exit strategy. Weigh the available options or come up with an alternative that makes sense to you, but have a solid exit strategy.