Learn To Be A Fix and Flip Investor: Drawbacks of Arizona Hard Money Loans

Friday, January 18, 2019

Drawbacks of Arizona Hard Money Loans

Nothing is ever perfect for every situation and Arizona Hard Money Loans are no exception to that rule. But understanding the drawbacks of these loans can help borrowers use the loans correctly and for the greatest benefit.

Most borrowers quickly discover that the cost of Arizona Hard Money Loans is often substantially more than the cost of a traditional loan. But there are reasons that the loan is more expensive, and for many of the borrowers, hard money is their only option. Having a loan that is not based on a credit score is all that gets many borrowers funded after a foreclosure or other financial issues. While other borrowers are unable to wait through the 60 to 90-day application and evaluation process that traditional lenders impose.

In particular, the interest rate charged by hard money lenders is double to triple the rate that a traditional lender will charge. But again, borrowers who have no other option are willing to pay the higher rate to get a loan. In some cases, the borrowers can agree to a shorter term loan which decreases the interest cost. Other times, the borrowers will carry Arizona Hard Money Loans long enough for their credit to improve, then refinance with a traditional lender.

Another cost drawback for Arizona Hard Money Loans is that the lenders are not required to follow the same rules as traditional lenders regarding fees. The lenders can charge just points to cover their administrative fees or they can itemize the fees. The lender is free to select any method that he or she likes to set up the fee structure for the loans.

Time Frame

The fact that hard money is a short-term loan can also be seen as a drawback for some borrowers. Paying back a substantial loan in just a few months or even a few years can mean that the payment schedule is very aggressive. These very large monthly payments can be difficult to continue to make. Some lenders will allow borrowers to pay the interest each month in addition to only a small amount of the principle, but that required a very large balloon payment at the end of the loan term which can also be hard for borrowers to make.

Make Smart Choices

Nothing is perfect, but there are usually ways to work around the downside or drawbacks of any situation if the reward is high enough. Securing hard money when you cannot qualify for a traditional loan is a big reward for some borrowers. And those borrowers are willing to pay a higher price for the loan. Other borrowers understand that they need the loan very quickly and that hard money is the only choice in the short term. They then work diligently to find a more traditional and low-cost way to refinance the loan. Understanding how hard money works and the costs involved will help you to evaluate the costs as well as any other options that you might have and make a well-informed decision about the money that you borrow.

Dennis Dahlber Broker Ri CEO Level 4 Funding LLC Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com
Dennis Dahlberg Broker/RI/CEO

About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.