Our Oregon Private Money Loans Can Help Finance Your Project
Financing is essential to any real estate venture. Traditional loans are the go-to for many real estate investors but aren’t always the best fit.
Short-term, equity-based hard money loans are a popular financing alternative for investment projects like fix-and-flips, when timing is critical, or if credit is less than stellar.
Acquiring any loan comes with certain risks and considerations. It’s essential to thoroughly understand the terms of a hard money loan agreement before committing.
Here’s what to look for in a hard money loan to ensure it aligns with your investment strategy.
How to Read a Hard Money Loan Agreement
Loan Terms: One of the primary advantages of a hard money loan is its flexibility. Unlike conventional loans, hard money loans can be tailored to fit the specific needs of your real estate project. Loan duration, payment schedule, or the borrowed amount can often be negotiated with a private money lender. This flexibility also requires investor responsibility. Before signing, ensure you fully understand all terms of the loan to avoid any surprises down the road.
Property Value: Traditional banks and lenders focus heavily on creditworthiness. Hard money lenders prioritize the value of the property being used as collateral, so it’s crucial to understand the following:
- ARV (After-Repair Value): Estimated value of the property after all renovations and repairs have been completed. Hard money lenders often base loan amount on a percentage of the ARV, so a realistic and accurate estimate is essential.
- LTV (Loan-to-Value Ratio): Compares the loan amount to the property value. A lower LTV means less risk for the lender, which could result in more favorable loan terms.
- ROI (Return on Investment): A high ROI indicates a profitable investment, determining whether the deal makes financial sense.
Interest Rate: Because private money lenders assume increased risk, hard money loan interest rates are higher, typically ranging from 8% to 14% or more. Calculate how these higher interest rates will impact your overall profit margins.
Closing Costs & Fees: Hard money loans usually close within days rather than weeks or months. However, like traditional loans, they come with various fees:
- Origination Fees: Administrative fees charged by the lender to process the loan, typically ranging from 1% to 3% of the loan amount.
- Points: Prepaid interest that you pay upfront. One point is equivalent to 1% of the loan amount. Points vary depending on the private money lender and loan specifics.
- Underwriting Fees: Fees to cover the cost of evaluating the loan. They can vary significantly depending on the complexity of the deal.
- Title & Escrow Fees: Standard fees associated with closing a hard money loan, covering the cost of title insurance and the escrow service.
Pre-Payment Penalty: Some private money lenders charge a pre-payment penalty if you pay off your loan early to make up a portion of the interest they expect to earn. Before agreeing to any loan, confirm if there’s a pre-payment penalty fee and factor it into your financial planning.
Extension Options: Real estate projects don’t always go as planned and you might need more time than initially anticipated. Some hard money lenders offer extension options, but often at a cost. Extension fees can vary; clarify potential charges upfront.
Other Fees, Charges & Contingencies: As with any financial agreement, the fine print can contain critical details that could impact your investment. Look out for any additional fees, charges, or contingencies in the contract. Are there conditions that could trigger higher fees or alter the loan terms? Understanding these details can help you avoid costly mistakes.
A hard money loan can provide quick access to capital and flexible terms that traditional loans might not offer. Make informed decisions that align with your investment goals by understanding these key loan elements.
We are Trusted Oregon Hard Money Lenders
Savvy real estate investors look for experienced, reliable private money lenders. Gregory M. Russell has been a top-rated Oregon private money lender for three decades. Our lending team works with real estate investors in Oregon State and throughout the Pacific Northwest to provide customized hard money loans. We loan up to $400,000 on a variety of investment projects, from fix-and-flips to rentals to property repairs. Give us a call at 1-888-477-0444 to talk about fast, flexible financing options. You can also complete our short loan request form and we’ll quickly get back to you.