If you consider taking a hard money loan, there are a couple of things you’ll need to know. In the subsequent sections, we’ve covered what hard money loans are, the loan requirements, how to find the best lenders and everything in between.  

What Are Hard Money Loans?

A hard money loan is a short-term loan popular among real estate investors. The loan is taken from private lenders who charge a slightly higher interest rate than the traditional banks. Most investors who go for hard money loans either need a huge amount of cash fast or don’t qualify for bank loans.

These loans usually have a short repayment period of about 12 to 18 months but can be extended to three years in some instances. Since the loan is mainly used in real estate, the asset to be purchased is used as collateral. 

How to Qualify for Hard Money Loans

The terms for getting a hard money loan usually vary from one lender to another. And since the loan comes from a private individual or company, it provides room for negotiation. However, you should meet some general expectations to qualify for the loan. We’ve rounded up the three most common requirements below. 

Down Payment  

This is perhaps the most important requirement every private lender will expect from a borrower. Having the required down payment is often an indication that you are committed to the deal and are ready to buy the property. The typical down payment is usually in the 25% to 40% range, depending on the type and value of the property. A high down payment reduces the risk the private lender is exposed to, which could mean an increased chance of getting the loan or paying slightly lower interest rates.

Familiarity with Real Estate and Exit Strategy

Most hard money lenders like researching more about their client’s experience in the real estate market. A borrower trying to step into the market for the first time will have a harder time securing the loan than a veteran investor. The real estate market can be volatile, so it is important to carefully consider the risks before taking out a Loan Against Property. So it would make a lot more sense to first understand the market before trying out a hard money loan. Similarly, the private money lender expects the borrower to have a solid exit strategy and contingency plan for repaying the loan if the property delays in the market.

Overall Financial Strength 

Every lender would want to have their money back after the repayment term elapses. However, the market is always subject to several forces, and it’s not guaranteed whether the investor will honor the loan terms. So to shield themselves from adverse risks, most investors will choose to work with established borrowers with other income sources. Some of the best investment ideas in India for money lenders include peer-to-peer lending platforms, microfinance institutions, and non-banking financial companies (NBFCs).

How to Find the Best Hard Money Loan Lenders

Now that you have decided to go for a hard money loan, it’s time to find the right lender. The key here is to do thorough research and talk to other real estate investors. Spending a good amount of time to find a good lender is rewarding for both your current and future projects. Here are some tips you should follow to find the best hard money lender.

• Start your research online. Use google and other social media platforms to find lenders in your area. You can identify legit and trustworthy lenders you can consider working with from online reviews and testimonials.

• Join a community of real estate investors. Here you will interact with people who have interacted with hard money lenders and can help you identify the best ones to work with. Attending their meetings will help you interact with them one on one.

• Reputation. Before making a deal, the most important step is staying away from hard money lender scams. Look for trustworthy referrals and reviews to identify the most reputable lender. It is advisable to use one from your locality as examining their credibility is easier.

• Go through all the terms and requirements. Although most lenders have similarities regarding loan conditions and terms, carefully evaluating each is important. Look out for interest rates, down payments, days to closing, loan duration, and borrowers they lend to. Mobile banking has made it easier for money lenders to reach borrowers, but it is important to be aware of the risks before taking out a loan. Having done this, identify the best one that suits all your needs and expectations.

Is a Hard Money Loan a Good Idea?

A hard money loan can either be a good or bad idea. It all depends on your reasons for taking out the loan. If you are in the real estate market, hard money loans can be quite rewarding. First, this loan will serve you well if you want to secure a home faster before the bank begins processing your mortgage. Second, the loan is great for house flippers who understand the real estate market.

If you take the loan for anything other than investing, a hard money loan would be a bad idea. The high-interest rates and short repayment terms might be quite overwhelming, and you could end up losing your property. 

The post The Facts of Working with Hard Money Lenders appeared first on Banking Decision.

• A total of 1,82,639 units were sold in 2020. 
• Affordable homes constituted a share of 48% of all units sold till 31^st December 2020. 

It clearly shows that while the supply and demand for homes in India are on the rise, affordable pricing is one of the primary requirements that aspiring home buyers are looking for. 

Moreover, after consecutive rate cuts, the current repo rate is kept at 4% for the first two months of CY21. Hence, it makes perfect sense for aspiring home buyers to invest in a property at an affordable home loan rate. It also makes way to service this credit with lower loan EMI. 

Besides macroeconomic factors, individuals can further reduce their interest rate and, eventually, the EMI burden by adopting crucial financial habits. Similarly, existing borrowers can also reap the benefits of this situation and save substantially on interest payment. 

Follow these Tips to Reduce Home Loan EMI Burden 

Irrespective of the interest rate, both new and existing borrowers can enjoy a reduced home loan EMI by following some simple tips. 

For New Home Loan Borrowers

• Choose a longer tenor 

Typically, a home loan accompanies a flexible tenor of up to 30 years that provides enough time to individuals for easy repayment. Now, the digital route of taking home loan is better and more convenient. They can choose longer to reduce home loan EMI. A longer tenor not only reduces the monthly instalments but also improves home loan eligibility. 

• Opt for a substantial down payment 

As per RBI guidelines, there is a cap on the LTV that you can avail to finance the purchase of your property. It means if your lender offers you an LTV of 75% on your home loan, you have to make a down payment of the rest 25% to apply for this credit. 

For instance, the current value of a property is Rs.45 lakh, and the applicable LTV is 75%. In that case, the maximum fund you can apply for is Rs.33,75,000, and you have to make a down payment of Rs.11,25,000. 

If you make an additional payment of Rs.3 lakh, you only have to apply for Rs.30,75,000. Resultantly, the home loan EMI will reduce accordingly. 

• Apply with a co-borrower

Besides improving loan eligibility, by opting for a joint home loan, individuals can split the EMI burden and facilitate faster repayment. Moreover, both parties can claim tax benefits under Section 24(b) on interest payment under the joint home loan facility. 

• Settle for lowest interest rate 

Since lower interest rates reduce home loan EMI, individuals need to look for a lender who offers substantial funds at a competitive interest rate. You can compare and know with a personal loan EMI calculator. To ensure that, they need to compare different lenders and use a home loan calculator to settle for the most economical option. 

However, before applying, you can also use a home loan eligibility calculator to check if you are eligible to avail your desired corpus or not. 

Besides new borrowers, existing borrowers can lower their home loan EMI burden in the following ways. 

For Existing Home Loan Borrowers

• Prepay whenever possible 

One of the simplest ways to reduce the home loan EMI is considering part-prepayment whenever you have a surplus. In this regard, you can make use of the festival bonuses, maturity income from life insurance and other available options. By prepaying, you can either reduce the EMI keeping the tenor the same, or you can keep the EMI the same and shorten the tenor. 

However, you need to consider the lock-in period, pre-payment charges and likes, before opting for this facility. 

• Opt for a home loan balance transfer facility 

Alternatively, you can also opt for home loan balance transfer. It allows you to secure a lower interest rate and better service. 
Now that most financial institutions offer home loans with an interest rate lesser than 7%, you can save substantially on interest payment by opting for this transfer. 

Select Housing Finance Company also extends a high value top-up loan when you transfer your outstanding balance to them. They also provide pre-approved offers that simplify the loan application process. Such offers are available on various products, including loans against property, home loans and many more.

You can use this top-up loan amount without any restriction and finance any personal or professional expense. Following the aforementioned tips, individuals can reduce their home loan EMI, regardless of the market condition. It helps them clear debt faster and ensures a smooth borrowing experience.

The post Know Smart Ways to Reduce Your Home Loan EMI Payments appeared first on Banking Decision.