Hard money loans are used for many purposes and come with a variety of financing terms. Depending on who you partner with, you could have months or years to repay the balance in full.
Before getting into how long you have to repay Arizona hard money loans (HMLs), it’s important to distinguish what makes them different from other lending options. People tend to gravitate toward this form of alternative funding when bank options just won’t cut it. For example, if a business needs to buy equipment, but the owner has rotten credit and the business hasn’t established credit yet, he might turn to an HML. People who work in real estate investing use them a lot too. They’re helpful because they close faster than traditional mortgages, so an investor can grab a good deal before someone else does. Banks recoil at the thought of financing homes that are in severe disrepair as well, so someone in fix-and-flips might use an HML while he fixes up the property. Someone purchasing a fix-and-hold, like a vacant apartment complex in disrepair, might use an HML during the repairs, then refinance under traditional terms with a bank after; once the bank is no longer put off by the condition of the property.
Most of the time, the money for these projects comes from private investors, or individual people who have done well enough for themselves that they’re able to finance the projects other people do. That means the requirements to qualify and the terms offered will be a little different depending on who is doing the financing. You’ll also find that brokers get into the mix because they help connect businesses and individuals with the lenders and help them find a lender who is going to get them the best terms possible.
When it comes to repayment terms, many lenders do not expect you to pay toward the principal while the loan is active. Instead, you’ll likely make interest-only payments, then pay off the balance in one lump sum at the end. This can either be at the end of your term or before, provided you have the means to do so. For example, if you finish repairing a fix-and-flip and get it sold in half the time you anticipated, you could pay off the balance then and there.
Terms Typically Run from a Few Months to a Few Years, Depending on Your Needs and Eligibility
Arizona Hard money loans are usually based on the value of an asset. In the case of equipment, it’s often the value of that equipment, but a business owner could also use property to secure the loan. When it comes to real estate, the property secures it. This means that becoming eligible for an HML is easier than qualifying for funding through conventional channels. However, your lender will also look at things like your ability to pay (cash inflows), your experience and plans for the cash, and the location of the property too. All this and more goes into deciding how long you’ll have to repay. That said, most people have somewhere between three months and five years to take care of the principal.
Alternative lending may be right for you if you know how to craft a successful exit plan.
Before applying for funding, create a solid timeline of when you’ll either be able to pay off the balance through the sale of your asset or by refinancing. When you know your own timeline and what it will take to get you there, provided you’re looking at 3-60 months, you’ll have a much easier time qualifying for hard money loans in Arizona that fit your needs.
Level 4 Funding LLC
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About: 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.
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