8 Tips to Getting a Better Deal on Real Estate Financing
Real estate financing is very unique and requires a lot of preparation in the financing. We will look at 8 tips to getting a better deal on real estate financing. It doesn’t seem wise to issue a loan in foreclosure proceedings or someone desperate to refinance to get cash. These lenders understand that, from time to time, even good people wind up in bad situations and need a temporary fix to help them get out of the hole. For borrowers, a hard money lender’s benevolence could be a lifesaver. It could spark the beginning of a painstaking downward spiral.
The following are some tips for negotiating with a money lender to ensure you get a fair deal;
1. Put more Emphasis on the exit strategy
A hard money lender’s worse nightmare is a vacant property sitting on their balance sheets tying up their cash. Present a compelling case as to why worst-case scenario they can quickly sell this property if your deal fails.
2. Find the right lender
Sure, you’re in dire need of cash and no one wants to give you any, but that doesn’t mean you should automatically sign up with the first hard money lender that comes your way.
3. Don’t expect low-interest rates
You’ll probably be offered an interest rate in the ballpark of 12 to 18 percent. Certainly, don’t sign up for anything over 20 percent. Run the calculation to see how much more you will be required to pay and ask yourself, “Is it worth it? What other options do I have?”
4. Look for low points
Hard money lenders usually charge anywhere from 4-8 points. One point equals one percent of the mortgage amount. The lower the points, the fewer fees you pay. It’s not reasonable to expect 1 point, but try to stay below 5 if you can.
5. Seek a nonrecourse loan
With a recourse loan, a lender can not only take your home in the event of nonpayment, but the lender may also take legal action against you resulting in wage garnishments or expensive court cases. Be sure you are taking out a nonrecourse loan, which says that the lender may take your property as collateral if you do not pay back your hard money loan.
6. You have to deal with the boss or the owner himself
The advantage of a hard money loan is that a lot of lenders are a small business operated by a small team or a single investor. Stark contrast the bureaucratic, analysis-paralysis underwriting process of a bank. A lot of times with a hard money lender, you can reach someone with the ability to make quick unilateral decisions in one or two phone calls.
7. Before finalizing, know your terms clearly
Watch out for structures that seem like you can only fail like interest-only or adjustable-rate loans that increase dramatically after a set amount of time. Know precisely how much the loan will cost you. Sometimes individuals get tricked into paying on interest each month until the end of the loan term when the payment balloons suddenly, making it hard to fulfill the agreement.
8. You have to realize it is a risk game
Hard money lenders are giving large putting up large amounts of money for deals of dubious quality. When you talk with the decision maker give them as many reasons as possible why your deal is unique. Explain yourself in the field of your team resources, any similar deal that turned out well and your experience.