What Hard Money Lenders Will Never Tell You

Any investor making many offers usually has starting money costs that add up at a very high rate. This has limited the numbers of offers that most investors make. However, investors looking to increase their offers on more properties without an increment on their starting money should consider lenders that offer true 100% financing on deals by leveraging the clients’ business lines of credit. The private money lender may secure a business line of credit of a customer who needs funding in addition to 100% financing which it merges into one package.

last updated Wednesday, May 17, 2023
#Hard money lenders #Real estate investor

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John Burson

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Hard money lenders have a history of luring investors into closing a deal without giving them complete information or sometimes misinforming them about additional costs. Nearly every real estate investor thinks that they have 100% financing during the closing of a deal, not until the lenders inform them about other expenses not covered by the loan. Most real estate loans will not cover the starting money comprising the inspection, earnest, and evaluation fees, amongst other expenses. The investor must pay the costs to bring the property under contract.

The 100% Financing Options

The lenders will intentionally leave out information about the extra cost until the investor secures a loan and when they get to learn about other expenses. This means that most commercial hard money loans only cater for between 60 and 75 percent of the actual property value or the after-repair value. A hard money lender may choose to provide 100% of the financing without other additional costs, but this will rarely happen. They, therefore, employ the three 100% financing options below to finance the real estate investment deals:

• Type 1: The first type of funding covers only the property's 100% purchase price, leaving the investor to cover the starting money costs. It is the most popular 100% financing method among hard money lenders.

• Type 2: The lender may finance the repair, closing money costs, and the buying price of the property. However, the investors should be ready to cover the valuation costs, inspection fees, and earnest money. This 100% rarely happens, but most lenders may provide it in cases where the investor has an attractive deal.

• Type 3- the third type of 100% financing covers everything, including the starting money items, closing costs, repair costs, and the purchasing price. The only financing option allows the investors to get a deal without additional payment. However, most commercial hard money lenders will never provide this funding option.

Starting money may cost a real estate investor between $1,600- $2,100, with the inspection fee at $500, valuation falls at $600, while the earnest money ranges between $500 and $1,000. Most new investors, without starting money, can get 100% financing options to cover the expenses. However, it is common for already established investors to protect their own starting money costs.

 
 
 

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