1. “Hard” money doesn’t mean “stupid” money. The hard money lender wants to be paid back on time and doesn’t want to foreclose. Hard money lenders are no different than any other lender in that regard.
2. Hard money is an important player in the real estate industry. Hard money is used to acquire and renovate properties that traditional banks won’t touch in the property’s existing condition. Once the property is renovated and brought into proper condition, buyers can find financing anywhere.
3. Hard money loans require more down payment, higher interest rates and closing costs. You might expect to put anywhere from 30-50 percent down, pay three to five points in addition to traditional closing costs. These costs must be considered when evaluating a potential acquisition.
4. A clear exit strategy is a must for both you and the hard money lender. The lender needs to understand how the loan will be paid back. Will you obtain a conventional loan to replace the hard money or sell the property to pay back the investor?
5. Hard money loans are for a very short term, some as short as 90 days. The hard money lender will extend the loan for as long as needed to buy, renovate and flip the property. If renovations are taking longer than expected, hard money lenders can write up a loan extension, for a fee.
6. Different hard money lenders will have different preferences for property types. Some hard money lenders may only like to finance single family residential rehabs while others will finance a strip mall or an apartment building.
7. Don’t start shopping for a hard money lender once you’ve found a property. Plan way ahead. Before making an offer on any property that needs a hard money loan, review the prospect with at least one hard money lender to see if it’s a viable deal.
8. Because hard money lenders can go after particular properties, if one hard money lender declines your proposal, keep going. If the deal makes sense and you can back it up with documentation, you’ll find a hard money lender.
9. Hard money lenders get their money in three primary ways: solicit investment funds from individuals to finance a lending pool, solicit funds from individuals as each potential project arises and obtaining short term funds from a conventional bank. Sometimes hard money lenders want to make a loan but the funds aren’t readily available.
10. When hard money lenders solicit individual investors for a project, the individual investors can decide on their own whether or not to invest. They’re not obligated to finance anything they don’t like and use their own due diligence to review a project even after the hard money lender has approved the project.

 

1. Some financing costs and be reduced and some simply cannot. There are two types of financing costs, recurring and non-recurring. Non-recurring fees are one time charges by third parties associated with closing a loan. Recurring costs are interest payments, insurance and property taxes. Investors have more control over recurring closing costs compared to non-recurring.

2. The easiest way to reduce financing costs is to simply ask. Some entities have the authority to bargain with a buyer while others do not. Don’t expect a vendor to voluntarily provide their best rate.

3. When refinancing, contact the service providers previously used and ask for a discount. Title insurance discounts for example are typically issued for newer policies. You may also get discounts for title insurance if you get your policy at the same place where you hold you close escrow.

4. A seller can provide a copy of an existing survey and sign an affidavit stating there have been no permanent changes to the property such as more square feet, a fence or other impervious cover.

5. Ask the seller to pay for all or part of your closing fees. Sellers are allowed to pay buyer’s closing costs up to 2.00% of the sales price. For a $200,000 purchase, that’s up to $4,000.

6. Your lender may also pay for your closing costs. Sometimes lenders have both “required” fees and fees that may be waived at the discretion of the loan officer. But if you don’t ask you won’t get them. The best time to negotiate is while you’re still shopping around. Get all agreements to costs in writing.

7. By paying a discount point to lower your rate, you can also increase your interest rate and receive an automatic lender credit. On a 30 year loan, raising your rate by about 0.25% can result in a 1.00% lender credit. On a $200,000 loan that’s $2,000. Compare the higher rate with cost savings but it almost always makes sense.

8. Lower your insurance premium by increasing your deductible. Speak with your insurance agent to make sure you’re sufficiently covered and for any discounts that are available.

9. If you close at the end of the month, you’ll save on prepaid financing charges. Mortgage interest accrues in arears and the interest collected at closing is in reality your first mortgage payment. If you close on the very last day, you will only pay one day of interest.

10. Ask if there are any affiliated providers, companies that have a formal business agreement with one another. For example, one parent company may own a title insurance firm, legal, settlement services and other real estate related businesses. You may be able to negotiate discounts using one firm that provides multiple services.

1. Fixed, hybrid or adjustable. If you’re holding the property for the long term, get a fixed rate. For shorter term flips, choose the lowest rate and fee combination available.
2. Discount points are available for all mortgage loans. A discount point is so-called because it “discounts” or lowers the interest rate on a mortgage. Typically, one point (one percent of the loan amount) will reduce a 30 year mortgage rate by 0.25%. Work the comparisons with your loan officer and never pay points for an adjustable or hybrid mortgage.
3. Will you live in your rental property? Financing a duplex or 2-4 unit can get you a lower rate and lower financing costs if you occupy one of the units as your primary residence.
4. How long should you finance your purchase? The shorter loan term has much less interest but higher payments, affecting your monthly cash flow. Most lenders offer loan terms in five year increments from 10 to 30 years with some lenders extending terms to 40 years although those are much more difficult to find in today’s environment.
5. If you’re buying a foreclosure in an area where there are several such properties, it’s possible you may have a valuation issue. If the appraiser states property values overall are declining, the appraisal may come in lower than the sales price. In such an instance, you’ll have to decide whether or not to continue. Either the price will need to be renegotiated or you’ll have to come to the closing table with the difference between the original sales price or appraised value.
6. Where will you get financing? Most loans today are almost identical for investment property and lenders compete for your business. Decide in advance not only what type of loan you’ll get but where. Work to establish a long term relationship with your lender.
7. Do you want to save some cash? Talk to your lender about getting a lender credit for your loan. Lenders can adjust your interest rate slightly higher and pay for some or all of your closing fees. Lenders don’t have a preference and can provide you with various rate and fee combinations.
8. Some higher end properties will approach and exceed conforming loan limits. Sometimes jumbo rates are higher than conforming and vice versa which means you may decide to put more or less down and still meet loan guidelines in order to get a better rate.
9. You can choose to get your financing from a bank, a mortgage banker or a mortgage broker. Banks typically have slightly higher rates than what is currently available as their customers already have various bank accounts with them. Mortgage bankers approve and fund mortgage loans and do nothing else. Once the loan is funded, it’s usually sold to other lenders or directly to Fannie Mae or Freddie Mac. Mortgage brokers arrange funding between a lender and a borrower. A mortgage banker or broker is most often your better deal.
10. When deciding to refinance, it’s usually because rates have fallen. Yet you can also refinance for other reasons such as pulling cash out, changing loan terms or switching from an adjustable to a fixed rate loan.

1. Know before you go. You can get a free credit report at www.annualcreditereport.com, a service provided by the three main credit repositories. Look for mistakes on your report. Lower credit scores will raise your interest rate.
2. If there is a mistake on your credit report, don’t try and fix it on your own. Instead, provide your documentation showing the information on your report is in error and let your mortgage company fix it. They can do in one day what might take a month or more doing it yourself.
3. There are online companies that offer to provide you with your credit score. Mortgage lenders pull a credit report specific to the mortgage industry and can be different than the score you’re provided. Most lenders today ask for a minimum credit score of 640.
4. The best interest rates are reserved for those with credit scores above 740 and lenders can raise or lower a rate for scores as low as 640 in increments of 20 points.
5. Mortgage lenders ask for at least 20 percent down but you can get a slightly better rate with 25 percent down. More down payment means a better cash flow.
6. Don’t pay discount points for a lower rate. One point is one percent of your loan amount and will reduce a 30 year rate by about one-quarter of one percent. Work with your loan officer but usually paying points isn’t offset enough with lower payments.
7. Get mortgage quotes from at least three different lenders but when you get quotes, get them on the same day, the same time and for the same loan type. Rates can change daily and it’s confusing to try and compare a 20 year loan with a 15 year. Always compare apples to apples.
8. Rates are lower for shorter term loans but the monthly payments are higher. A payment on a 30 year loan will be lower than one for a 15 year but the interest paid on the 30 year mortgage will be much higher.
9. You can start out getting rate information from your bank but the best mortgage rates will be available from a mortgage banker or broker. A mortgage banker is a lender who does nothing but mortgages. A mortgage broker is a business that matches up a buyer with a lender.
10. Negotiate to have the seller pay for your closing costs, keeping cash in your pocket. You can use the savings to buy down your interest rate or keep the funds for your next transaction.