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FHA Loan and Financing Information from, what is an fha loan.#What #is #an #fha #loan


FHA Loans Explained and Delivered

Federal Housing Administration (FHA) Loans have returned to the lending market as a smart option for home financing for first time home buyers and those with less than perfect credit. At FHA Mortgage Center.com, we provide expert resources to consumers through a wealth of information on FHA home financing.

FHA Loans by State

More Information on FHA Mortgages

Choose an FHA Loan and Save Money. Choosing FHA Financing for your home loan can be a wise decision depending on your specific situation. The costs associated with the FHA Loan Program differ from other types of home financing. Benefits may include the following:

  • Smaller down payments
  • Attractive interest rates
  • Allowance of gift funds
  • 6% seller contributions
  • Lower closing costs

All of these benefits mean less money is required from you at the closing table!

By definition, FHA financing is a government-insured loan program that delegates loan approval to approved lenders.

Changes in the Housing Market Make FHA the Right Choice

What is an fha loan

After the fallout of the subprime and Alt-A loan markets in 2007, FHA Loans have received a new shot of energy throughout the housing market. Lenders, realtors, politicians, and investors have all issued statements championing the return of the FHA Home Loan Program to its rightful place in helping Americans purchase homes.

Borrowers like you, who once would have been better off in a conventional mortgage, may now find a FHA Home Loan to be the cheapest and safest option for securing a home.

FHA Resources

No matter what program you decide to use for your home loan, the basic terminology is something all home buyers need to be familiar with. You can use our new FHA Loan Term Glossary to learn and become comfortable with the financial terminology you will encounter with any home loan.

NOT a Government Agency

FHA Mortgage Center.com is not affiliated with any government agencies, including the FHA (Federal Housing Administration) or the HUD (Department of Housing and Urban Development).

FHA Mortgage Center.com Blog

Latest Articles

What is an fha loan


FHA Loan and Financing Information from, what is fha loan.#What #is #fha #loan


FHA Loans Explained and Delivered

Federal Housing Administration (FHA) Loans have returned to the lending market as a smart option for home financing for first time home buyers and those with less than perfect credit. At FHA Mortgage Center.com, we provide expert resources to consumers through a wealth of information on FHA home financing.

FHA Loans by State

More Information on FHA Mortgages

Choose an FHA Loan and Save Money. Choosing FHA Financing for your home loan can be a wise decision depending on your specific situation. The costs associated with the FHA Loan Program differ from other types of home financing. Benefits may include the following:

  • Smaller down payments
  • Attractive interest rates
  • Allowance of gift funds
  • 6% seller contributions
  • Lower closing costs

All of these benefits mean less money is required from you at the closing table!

By definition, FHA financing is a government-insured loan program that delegates loan approval to approved lenders.

Changes in the Housing Market Make FHA the Right Choice

What is fha loan

After the fallout of the subprime and Alt-A loan markets in 2007, FHA Loans have received a new shot of energy throughout the housing market. Lenders, realtors, politicians, and investors have all issued statements championing the return of the FHA Home Loan Program to its rightful place in helping Americans purchase homes.

Borrowers like you, who once would have been better off in a conventional mortgage, may now find a FHA Home Loan to be the cheapest and safest option for securing a home.

FHA Resources

No matter what program you decide to use for your home loan, the basic terminology is something all home buyers need to be familiar with. You can use our new FHA Loan Term Glossary to learn and become comfortable with the financial terminology you will encounter with any home loan.

NOT a Government Agency

FHA Mortgage Center.com is not affiliated with any government agencies, including the FHA (Federal Housing Administration) or the HUD (Department of Housing and Urban Development).

FHA Mortgage Center.com Blog

Latest Articles

What is fha loan


What is an FHA Loan? Complete Guide to FHA Loans, Zillow, what is fha loan.#What #is #fha #loan


What is an FHA Loan? – The Complete Consumer Guide

In this article:

An FHA loan is a mortgage that’s insured by the Federal Housing Administration (FHA). They are popular especially among first time home buyers because they allow down payments of 3.5% for credit scores of 580+. However, borrowers must pay mortgage insurance premiums, which protects the lender if a borrower defaults.

Borrowers can qualify for an FHA loan with a down payment as little as 3.5% for a credit score of 580 or higher. The borrower s credit score can be between 500 579 if a 10% down payment is made. It s important to remember though, that the lower the credit score, the higher the interest borrowers will receive.

The FHA program was created in response to the rash of foreclosures and defaults that happened in 1930s; to provide mortgage lenders with adequate insurance; and to help stimulate the housing market by making loans accessible and affordable for people with less than stellar credit or a low down payment. Essentially, the federal government insures loans for FHA-approved lenders in order to reduce their risk of loss if a borrower defaults on their mortgage payments.

FHA Loan Requirements

For borrowers interested in buying a home with an FHA loan with the low down payment amount of 3.5%, applicants must have a minimum FICO score of 580 to qualify. However, having a credit score that’s lower than 580 doesn’t necessarily exclude you from FHA loan eligibility. You just need to have a minimum down payment of 10%.

The credit score and down payment amounts are just two of the requirements of FHA loans. Here’s a complete list of FHA loan requirements, which are set by the Federal Housing Authority:

  • Borrowers must have a steady employment history or worked for the same employer for the past two years.
  • Borrowers must have a valid Social Security number, lawful residency in the U.S. and be of legal age to sign a mortgage in your state.
  • Borrowers must pay a minimum down payment of 3.5 percent. The money can be gifted by a family member.
  • New FHA loans are only available for primary residence occupancy.
  • Borrowers must have a property appraisal from a FHA-approved appraiser.
  • Borrowers front-end ratio (mortgage payment plus HOA fees, property taxes, mortgage insurance, homeowners insurance) needs to be less than 31 percent of their gross income, typically. You may be able to get approved with as high a percentage as 40 percent. Your lender will be required to provide justification as to why they believe the mortgage presents an acceptable risk. The lender must include any compensating factors used for loan approval.
  • Borrowers back-end ratio (mortgage plus all your monthly debt, i.e., credit card payment, car payment, student loans, etc.) needs to be less than 43 percent of their gross income, typically. You may be able to get approved with as high a percentage as 50 percent. Your lender will be required to provide justification as to why they believe the mortgage presents an acceptable risk. The lender must include any compensating factors used for loan approval.
  • Borrowers must have a minimum credit score of 580 for maximum financing with a minimum down payment of 3.5 percent.
  • Borrowers must have a minimum credit score of 500-579 for maximum LTV of 90 percent with a minimum down payment of 10 percent. FHA-qualified lenders will use a case-by-case basis to determine an applicants credit worthiness.
  • Typically borrowers must be two years out of bankruptcy and have re-established good credit. Exceptions can be made if you are out of bankruptcy for more than one year if there were extenuating circumstances beyond your control that caused the bankruptcy and you ve managed your money in a responsible manner.
  • Typically borrowers must be three years out of foreclosure and have re-established good credit. Exceptions can be made if there were extenuating circumstances and you ve improved your credit. If you were unable to sell your home because you had to move to a new area, this does not qualify as an exception to the three-year foreclosure guideline.
  • The property must meet certain minimum standards at appraisal. If the home you are purchasing does not meet these standards and a seller will not agree to the required repairs, your only option is to pay for the required repairs at closing (to be held in escrow until the repairs are complete).

See today s rates for FHA loans on Zillow What is fha loan

Benefits of FHA Loans: Low Down Payments and Less Strict Credit Score Requirements

Typically an FHA loan is one of the easiest types of mortgage loans to qualify for because it requires a low down payment and you can have less-than-perfect credit. For FHA loans, down payment of 3.5 percent is required for maximum financing. Borrowers with credit scores as low as 500 can qualify for an FHA loan.

Borrowers who cannot afford a 20 percent down payment, have a lower credit score, or can’t get approved for private mortgage insurance should look into whether an FHA loan is the best option for their personal scenario.

Another advantage of an FHA loan it is an assumable mortgage which means if you want to sell your home, the buyer can “assume” the loan you have. People who have low or bad credit, have undergone a bankruptcy or have been foreclosed upon may be able to still qualify for an FHA loan.

Mortgage Insurance is Required for an FHA Loan

You knew there had to be a catch, and here it is: Because an FHA loan does not have the strict standards of a conventional loan, it requires two kinds of mortgage insurance premiums: one is paid in full upfront -– or, it can be financed into the mortgage –- and the other is a monthly payment. Also, FHA loans require that the house meet certain conditions and must be appraised by an FHA-approved appraiser.

Upfront mortgage insurance premium (UFMIP) — Appropriately named, this is a one-time upfront monthly premium payment, which means borrowers will pay a premium of 1.75% of the home loan, regardless of their credit score. Example: $300,000 loan x 1.75% = $5,250. This sum can be paid upfront at closing as part of the settlement charges or can be rolled into the mortgage.

Annual MIP (charged monthly) — Called an annual premium, this is actually a monthly charge that will be figured into your mortgage payment. The amount of the mortgage insurance premium is a percentage of the loan amount, based on the borrower s loan-to-value (LTV) ratio, loan size, and length of loan:


Is a bridging loan the right solution for our homebuying needs? #free #mortgage #calculator


#bridging loan calculator
#

Is a bridging loan the right solution for our homebuying needs?

Q We own a property outright valued between 475,000 and 495,000, but it does not have the accommodation we require. We have seen another nearby that would be almost ideal for our needs once it was extended and modernised. The asking price is 300,000, but I think an offer of 280,000 would be accepted. I estimate the cost of extending and modernising would be around 60,000- 70,000.

My wife is 64 and retired. I am 63 this year and partially disabled, but I work part time as a director and co-owner of a small business. Our combined income is a very modest 20,000- 24,000. I have occupational pensions with a total pot value of 85,000 that could be taken now, and we have 25,000 in equity Isas, 7,000 in cash Isas and 5,000 in savings. My state pension is payable from 2014 and is presently estimated to be in excess of 9,000 a year.

I think we could finance this project with a bridging loan of up to 350,000, that we would require for a period of up to nine months. We are fortunate our present home is in a very desirable location and our local estate agents all confident it would sell quickly once marketed, and would achieve the upper end of the valuation.

Do you think a bridging loan is a feasible and cost-effective source of finance, and if so can you recommend any lenders? Alternatively, what other sources of funding could you suggest? JJ

A Because lenders consider your personal circumstances less important than when considering a conventional residential mortgage, a bridging loan is certainly feasible for you – but it’s hardly cost effective.

Costs vary from lender to lender but are likely to include an arrangement fee of 1.5%, legal fees and interest on the loan, which could be anything between 1% and 2% a month – so between 12% and 24% a year.

In your case, if you raised a bridging loan of 350,000 (assuming a purchase price of 280,000 plus 70,000 for building works) secured on your current home (assuming a value of 475,000), you could pay an arrangement fee of 5,250 plus that amount in interest for each of the nine months you would have the loan. In total, the fees plus interest would come to 52,500.

You could cut the cost of the loan by using both properties as security for the loan. But even then you would pay a total of nearly 29,000 in fees and monthly interest. I can’t help feeling you would be better off selling your current home, buying the new property outright with cash and renting somewhere to live while the building work is done.


Is a guarantor loan right for you? #unsecured #debt #consolidation #loans


#guarantor loans
#

Is a guarantor loan right for you?

    Thursday 8 May 2014 17:22 BST

If you don’t have much of a credit history or you have bad credit, getting a loan can be difficult. You’ll either struggle to get a loan in the first place, or you’ll end up paying such a high rate of interest, you could easily land yourself with serious debt issues. Quite recently a new type of loan has been introduced in the UK. A guarantor loan allows you to take out a loan, where a second person acts a guarantor.

Below is a quick and easy guide to the most common questions regarding guarantor loans.

What is a guarantor loan?

Guarantor loans are unsecured loans that require a second person to act as a guarantor. Guarantor loans can be over terms of one to five years and you can borrow anywhere between £1,000 to £7,500. They offer an ideal solution for people with bad credit, who would otherwise be unable to obtain a loan. Guarantor loans are not payday loans, the interest is much lower and you will not be charged any up front or arrangement fees.

Is a guarantor loan right for me?

If you have a bad credit history or have been rejected by other lenders, then guarantor loans could be the right choice for you. A guarantor loan also allows you to borrow a higher sum than you would be able to with other types of loans targeting people with poor credit. It’s also possible to rebuild your credit history by demonstrating that you are a responsible borrower and are able to make the repayments on time.

How can I apply for a guarantor loan?

Firstly like all loan applications, you must be over 18 years old and have a UK bank account where the repayments can be collected. You will still need to show that you can afford the repayments and that you are capable of paying the loan back in a timely fashion.

Who can act as a guarantor for me?

Almost anyone can act as your guarantor, as long as they are not financially linked to you (i.e. spouse). A guarantor could be a family member, friend or even work colleague. For your guarantor to be accepted they will usually need to be over 21 with a good credit history and also be a UK home owner. Checks on your guarantor are usually identical to normal credit checks – they will need to provide bank statements, bank details and proof of ID.

How much interest will I pay?

Interest is more than likely to be higher than a loan where a good credit history is needed. The APR of guarantor loans varies depending on the company, but the APR is usually around 50 per cent. It’s important to remember that although this is relatively high, it does represent the risk undertaken by the lender. You’ll also find that this is one of the lowest APRs available to people with bad credit history. Many other ‘bad credit’ loans, such as payday loans charge APR upwards of 1,000 per cent. Although the APR is higher, a guarantor loan, when paid back on time, is a great way to improve your credit score and improve your overall credit rating.

How do I choose the best guarantor loan?

Several companies have begun offering guarantor loans. The two most important factors to take into consideration are the interest you will pay and any other hidden fees. Guarantor loans from www.gbploans.com offer some of the most competitive rates currently available and they are also very up-front about everything. There are no hidden fees or extra charges throughout the period of your loan.

A guarantor loan isn’t for everyone, but if you credit history is poor and you’re in need of some extra cash, they can be a great solution.

Hugh Tyzack is founder and managing director of GBP Loans Limited, which was formed in 2008. GBP Loans specialises in no fee guarantor loans. GBP Loans has been a driving force in trying to eradicate bogus fee charging and is now one of the UK’s biggest providers.


Is Peer-to-Peer Lending Safe? #same #day #loan


#peer to peer loans
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Is Peer-to-Peer Lending Safe?

By NerdWallet. June 04, 2014, 01:06:49 PM EDT

Peer-to-peer lending. or P2P lending, took off in the mid-2000s at a time when many borrowers were growing frustrated with mainstream financial institutions’ dominance of the loan process. Unlike more traditional lending practices, P2P lending provides the potential for greater returns for investors and lower interest rates for borrowers. both of which have helped make this alternate way of lending increasingly popular.

The success of Lending Club and Prosper, P2P lending platforms that pair up borrowers with investors, has also bolstered the growth of P2P lending. Lending Club started in 2007 and made loans worth $3.5 million in its first year. That figure has since grown to $3.4 billion. While this explosive growth suggests that many investors think P2P lending is a perfectly safe alternative to more traditional forms of investing, there are undeniable risks.

Unlike government-backed loans, for example, P2P loans are not insured. Moreover, Prosper faced serious legal issues in 2008, when the Securities and Exchange Commission issued a cease and desist order against the company, claiming it was selling unregistered securities. Just one year later, Prosper rebooted its business after securing SEC registration for its loans, something all P2P lending platforms are now required to do. Apart from a now-settled lawsuit stemming from a group of disgruntled investors. Prosper has since steered clear of any legal issues, and recently received an A+ rating from the Better Business Bureau .

While these new regulations have gone a long way towards addressing consumer concern about P2P lending, it’s still important to minimize the risks associated with this type of investing. Prudent steps include diversifying your investment mix.

How does it work?

Lending platforms like Lending Club and Prosper have quickly become popular and reliable ways of doing P2P lending. These websites simplify the process and do a lot of the work for you, like bookkeeping and transferring the funds in question, without charging as much as banks. After signing up with the website, borrowers essentially just select a loan amount (up to $35,000 if you’re using Lending Club) and describe where this money is going before posting a listing to the website.

Investors, meanwhile, sort through these listings and invest in whatever they think will fetch the biggest returns. Borrowers make monthly payments, which investors receive a portion of.

Because loans are uninsured, default can be especially painful for investors. For some, this risk is worth it, as returns can be substantial. Conservative, five-year U.S. Treasury notes usually yield 0.9%, while four-year corporate bonds can yield up to 7.33%. In comparison, a three-year loan rated B1 by Lending Club (on an A through G scale), can yield 10%.

Minimizing risk

P2P lending can be as safe as you make it. For those new to P2P lending, experts suggest starting conservatively and also diversifying your investments. In other words, don’t lend all your money to one borrower. Instead, hedge your bets by lending just a bit of money to many borrowers. This is the best way to protect yourself against one devastating default, according to most experts. You can opt to invest in only a portion of a borrower’s request on Lending Club or Prosper. The straightforward logic behind this is that it’s unlikely that all of these borrowers would default on their loans.

Prosper claims that, since 2009, investors with 100 or more loans in their portfolio have never lost money. Moreover, rather than having P2P investments serve as the main source of your income, experts recommend that they constitute just a fraction of your larger investment portfolio.

Background checks serve as another security blanket: websites like Lending Club perform background checks on borrowers, which eliminate a lot of the mystery associated with lending money to someone you’ve never met before. You’ll know the credit score of whomever you are lending money to, along with other pertinent facts about their financial background.

Final thoughts

Thanks to the success of lending platforms like Lending Club and Prosper, similar websites are proliferating quickly. and thus continue to give borrowers and investors plenty of ways to conduct loans and investments. What’s more, several big players have given P2P lending a major endorsement. Just last year Google (GOOG ) invested $125 million in Lending Club. A few months after that announcement, Prosper received a $25 million investment from Sequoia Capital and BlackRock (BLK ).

A lot of money – and therefore trust – has been placed in the P2P lending model, which can be a great addition to your investment portfolio if you diversify your investments and practice the same good judgment you would when making any other important business decision.

Tony Armstrong is a staff writer at NerdWallet, a website devoted to helping consumers make smart financial decisions.


Is There Any Benefit to Refinancing My Car? #simple #loan #calculator


#refinancing car loan
#

Is There Any Benefit to Refinancing My Car?

Many people wonder whether or not it is beneficial to refinance my car loan. The simple answer is yes. Refinancing can save you hundreds, maybe even thousands over the life of your auto loan. The point of refinancing is so that you can get a better interest rate on your loan.

Lowering your interest rate by even one single percentage point can result in huge savings. Remember, car loans are normally more than three to six years in term length and all those months of interest add up. Here is the process you should follow to go about refinancing your car.

Meet With Your Current Lender

You should first get all of your necessary paperwork together. This includes your insurance, title papers, and any information regarding the car.

Next, you should meet with your current lender to talk about your loan. Don t start discussing better rates with them instead, talk about the amount you need to pay off your loan completely. It probably won t be the same as the total amount you owe. It can be less for paying it off early however there may be prepayment penalties.

Credit Score

Getting a better refinance rate is all about your credit score. Chances are, if you are paying a higher interest rate than the current market, it was because your credit score was less than stellar initially. You should check your credit score using sites such as Experian or TransUnion. You can have one free check per year that will not deduct points from your score. If your credit score is better than it was when you signed the loan, refinancing will definitely get you a better rate.

When you start the refinancing, it adds and subtracts what is called a trade line from your credit. Whenever a loan is refinanced, there is one lender that is being paid off in full and then another one comes into the picture with a new hold on the car. This change is noted on your credit, but it has no negative impact. All credit lines on your credit report will be updated on a monthly basis. This gives the rating agencies an idea on how you might be taking care of your debt load.

Benefits of Refinancing

Another reason you may want to refinance your car is raise yourself above other forms of credit. Once you have equity in your car, you can structure a new loan so the finance company will give you a check to use to pay off credit cards or make an extra payment or two on your house. Since interest rates on credit cards are so much higher than on car loans, it is very advantageous eliminate credit card debt as quickly as possible.

Sometimes lenders offer other types of incentives for opening a new loan with them. This can be an offer to make a payment for you or allowing you to skip a payment, without falling behind in your payments. This can be very helpful when you have a need to make repairs to your house or another car. You could even apply the money you save to the loan and have one less month to make payments or use the money towards a vacation or back to school needs.

Possible Problems with Refinancing

If the new company fails to pay off the entire amount of the old loan then your credit is at risk. Though widely uncommon, if you are not aware of this and the old loan is neglected, it will go into default and your credit will suffer accordingly.

Of course, the biggest effect on your credit is if you fail to pay the new loan and default on it. This will always have an adverse effect on your credit and immediately lower your credit score with rating agencies.

Research Quotes

Next, you should shop around for various vendors to find any better rates. You can use an auto loan refinance calculator to also help you figure out what your new loans would be fairly quickly. Other quotes will break it down for you and can usually be done online and within an hour. These quotes are sometimes inaccurate, so it helps to talk to a lender or even have an appointment with one. You will then need to transfer the title to the new lender and pay the small transfer fee.

In summary, refinancing your car loan is a great idea. Refinancing allows you to trade in your current loan for a new loan with another lender, but with a lower interest rate. This can save you lots of money over the life of the loan.


How much help is available? #school #loan


#loan consolidation
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Loan Consolidation

ATTENTION STUDENTS WITH OUTSTANDING STUDENT LOAN DEBT:

  • Learn what you can do now to save money during repayment.
  • Timing and effective communication with your Loan Servicer is key!

If you don t remember who your Loan Servicer is, don t know your debt balance, or want to review your student loan status, use your SSN, first two digits of your last name, your date of birth and your federal PIN at www.nslds.ed.gov to access your student loan information. If you need assistance accessing your loan records, contact Rogue Central Services .

Loan consolidation allows you to refinance any or all eligible outstanding federal student loans and create a single new loan with one monthly payment. The new loan will have a fixed interest rate, new terms, and may have an extended repayment period of up to 30 years.

Loan consolidation allows you to refinance any or all eligible outstanding federal student loans and create a single new loan with one monthly payment. The new loan will have a fixed interest rate, new terms, and may have an extended repayment period of up to 30 years.

Both the Federal Family Education Loan (FFEL) Program and the Direct Loan Program offer consolidation loans. FFEL Consolidation loans are available from participating Loan Servicers, and Direct consolidation loans are available from the federal government. Alternative consolidation options are also available through private Loan Servicers. However, benefits, repayment options and application procedures vary.

The following information pertains to the FFEL Consolidation loan process. For more information about the Direct Consolidation loan processes, visit www.loanconsolidation.ed.gov .

Consolidation loans are not for everyone. Several elements generate advantages and disadvantages that relate to your current and potential consolidation loan.

Before choosing loan consolidation, review all your options to be sure it’s the right choice for you.

Who is eligible for loan consolidation?

To be eligible for loan consolidation under the FFEL Program, you must agree to the terms and conditions listed on the Application and Promissory Note, which include:

  • You are not enrolled in school, or you are enrolled on a less than half-time basis.
  • You are in the grace period or already in repayment on EACH loan you have chosen to consolidate.
  • If you are in default, you must either make satisfactory repayment arrangements with your current Loan Servicer or agree to repay the consolidating Loan Servicer under an income-sensitive repayment plan.
  • You must agree to notify the Loan Servicer of any address changes.

Spouses may consolidate their eligible loans together.

If I have a direct loan, can I apply for a FFEL consolidation?

Most Loan Servicers will combine Direct and FFEL Program loans. Typically, the Loan Servicer requires the borrower to have at least one underlying FFEL Program loan with them. Some Loan Servicers may consolidate Direct loans for borrowers who have no FFEL Program loans. Check with your current Loan Servicer(s) on individual requirements.

Is there a minimum to consolidate?

Loan Servicers may require a minimum eligible loan amount before creating a new consolidation loan. Because each has specific terms, you should consult with your Loan Servicer prior to consolidating.

*Alternative and non-federally guaranteed loans will not appear on NSLDS. Also HEAL loans and other health professions loans will not appear, but you will want to list these on the worksheet under non-eligible loans.

What If I’m in default?

Even delinquent and defaulted loans may be consolidated. To qualify, you must be in repayment on your defaulted loan (typically three consecutive, voluntary, on-time, full monthly payments), or agree to repay your new consolidation loan under the income-sensitive repayment plan. If you have a court judgment on your federal student loan debt, you cannot consolidate. Contact your Loan Servicer for details.

Will I only have one Consolidation loan?

If you wish to consolidate both subsidized and unsubsidized education loans, your Loan Servicer will create two new consolidation loans in your name — one for each type of loan. Loan Servicers are required to track these loans separately, but will combine both loans for billing purposes; therefore, you will only make one monthly payment.

If I already have a Consolidation loan, may I re-consolidate?

Estimate my new monthly payment under consolidation


Hard Money: What is it and How do Hard Money Loans Work? #calculate #loan #payment


#hard money loans
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Hard Money: What Is It and How Do Hard Money Loans Work?

Most real estate investors hear terms that they don t understand in the beginning. One of these terms, hard money. is little understood, and frequently asked about. Here is a great explanation of hard money.

What Does Everyone Mean by Hard Money? What is Hard Money

Hard money lenders (HMLs) are typically private individuals or small groups that lend money (Hard money) based on the property you are buying, and not on your credit score. Usually these loans cost (percentage-wise) much more then an average mortgage. often times up to twice what a regular mortgage does, plus high origination fees.

Who Needs Hard Money

Developers and house flippers, amongst others, will use it to fund deals because you can often borrow up to 100% of your purchase price! On the other hand, hard money lenders will frequently require you to back up your loan with real assets. If you know you can buy a property and turn it quickly at huge profit, and you can t get a standard mortgage, it might be one way to go. Some investors use hard money to get into the property, do some quick fixes to raise the property value, then get a new loan (based on the property s new, improved value) from a bank to pay off the hard money lender.

In Other Words.

Hard money loans are easily accessed and cut through the red tape. If you can develop a relationship with a LOCAL hard money lender, you can get funds within a couple days, and sometimes with no appraisal or other costs (except for origination fees of course).

Now different HML s have different requirements and protocol. There is a local HML that only charges 12% interest and 1 point origination if you keep it over a year and 2 more points if you keep it less than a year. He only does 30 year notes, and obviously he wants you to keep it. He has over 1100 notes, so he doesn t want the hassle. He wants his money to stay loaned out. I have also worked with another local HML who doesn t charge any points, but he s extremely fickle and can be hard to work with.

Now the typical HML will charge somewhere right around the usury rate. In Texas its 18% annual, so most HML s will charge 5% origination and 13% interest on a 1 year note or no points upfront and 18% interest with a shorter call. Now they can get around usuary by shifting their origination fee into a commitment fee (little different protocol), but most HML s don t know this.

The beauty of HML s is that the loan is normally not based on your credit score (especially with local lenders) or at least not on your credit worthiness (assets and income), you can receive funding within a matter of days (normally about 7-14 days) rather than 30 days+, and you can get a loan on any piece of junk that you find. You also are not normally dealing with a processing team. You deal directly with an individual lender. If he or she says yes, then you have the loan. This is quite advantageous versus going through an entire loan committee process or underwriting process.

HML s on longer term investments are not a good idea, but for short term flips, rehabs, or for the initial purchase, they can be a very strong tool. I started my investing using HML s, and have made very good money using them. I now use mostly a line of credit from the bank, but it took me several years to work into that. I also now do some local hard money loans to other investors.

Thanks to Ryan Webber for his explanation in other words (from our forums )

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