All About Hard Money Loans for Bakersfield Real Estate

Bakersfield is among the hottest markets to experience a surge in young families moving into this West Coast city. If you are an investor looking for a good investment location, Bakersfield real estate should be among your top considerations.

If you are in the fix-and-flip business and have difficulty financing your project, a hard money loan could be just the thing you need to get it done.

This article will give you an overview of how hard money loans work and why they're considered a powerful source of funds for your real estate investment project.

What is a hard money loan?

A hard money loan is funded by a private or non-traditional lender where the asset being bought serves as collateral, reducing the risk both for the investor and the lender.

Flippers are the most typical clients of hard money loan lenders since it fits their specific needs. These loans are designed for those who need quick turnarounds between the purchase and the sale of the property. Investors who purchase commercial or rental properties also look to hard money loans as an alternative when they can’t get conventional loans.

There are also instances where borrowers use a hard money loan for faster home financing until they can secure a traditional mortgage.

If you want to know more about hard money loans, you can contact a Bakersfield mortgage broker to learn more.

How do hard money loans work?

A hard money loan is a way for real estate investors to borrow money quickly without going through traditional means of financing. Funds come from lenders who provide loans based primarily on the property you are using as collateral.

Traditional loans require substantial documentation proving that you can repay the loan. Lenders evaluate your credit scores, income sources, and debt-to-income ratio, making it more difficult for some to secure a loan. 

With a hard money loan with Accelerated Lending Group of Bakersfield, CA, the focus is more on the collateral since there is a reasonable expectation that the loan will be settled in full after the property is sold.

Hard money loans are usually short-term loans that last for one to three years. They are ideal for real estate projects with quick turnaround times from buying and renovating to selling.

What are the advantages of getting a hard money loan?

Convenience

Applying for a traditional loan can take time to close with all the new regulations. It’s common for borrowers to wait a month to close a loan. This is not an option for investors since they risk losing out on a particular property, especially in a competitive market like Bakersfield.

With a hard money loan, you can get funding in weeks, in some cases even a day. The convenience it provides makes it a great alternative to conventional mortgages.

Collateral

Lenders approve your loan based on the value of the property being purchased. Hard money lenders may not ask about your income or credit history and will underwrite loans based on your collateral.

When you apply for a hard money loan, the property you purchase is usually used as collateral. Some lenders may allow you to secure the loan with personal assets like a primary home you own.

Flexibility

Since you’re dealing with private lenders, you may be able to negotiate better loan terms or even reduce some fees.

Also, if your fix-and-flip project faces delays, you may be able to extend the life of your loan by getting an extension. For these reasons, you’ll want to work with a trustworthy and flexible hard money lender in Bakersfield.

When do hard money loans make sense?

Hard money loans are best for short-term loans, which is the arena of fix-and-flip investors. Have you heard of BRRRR? This is an acronym flippers use that means “buy, renovate, rent, refinance, and repeat.”

Flippers own property while renovating it, and once they increase the value, they sell it as soon as possible. The flipping process usually takes a year to complete.

Flippers prefer quick financing products since they don’t need a long-term loan as projects are completed within a short period. 

Conventional rehab loans have more stringent requirements and often require proof of income, good credit scores, a low DTI, and take longer to close.

With hard money loans, lenders don’t do background checks or credit checks, making it easier for first-time investors to get approved.

Things to remember when getting a hard money loan 

• When you take out a hard money loan, you still need to put down a percentage as a down payment. Lenders usually require between 10% to 20%. 

• You can’t borrow 100% of your asset’s value but only 65% to 75%. Lenders need to leave room for profit in case you default on the loan.

• If this is your first time doing a house flip, you need to be accurate with your estimate of expenses on the flip, or you may end up in a challenging situation. First-timers either underestimate or overestimate and end up getting jammed.

• Just like conventional loans, hard money has closing costs that range from 2% to 5% to cover various expenses by the lender.

Ready to apply for a hard money loan?

Hard money loans are perfect for investors looking for quick cash without the hassle of going through all the requirements that go along with traditional financing.

Do you want to learn more? Contact us today for more details on hard money loans by Accelerated Lending Group.

* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.