Should You Get a Hard Money Loan?
A personal https://paydayloansohio.net/cities/minerva/ loan can be used for anything, including a down payment on a home that you might not live in. Interest rates on personal loans are usually lower than those on credit cards, but they vary depending on your lender and creditworthiness. Personal loans heavily weigh your credit score when considering you as a borrower, which means that the lower your credit score, the higher your interest rate. Like a credit card cash advance, you’ll be paying off your personal loan as well as your hard money loan at the same time, which could mean your bank account can take a huge hit.
Family and friends
If you don’t have the financial history to prove your creditworthiness, you might have better luck with those that personally know you. Try asking family and friends for down payment cash. They’re more likely to be lenient on repayment options, which means you might not have to make two loan payments at the same time. Even so, you should have some sort of contract in place that details your loan, interest rate (if any), repayment plan, and any fees, if your loved ones want to implement them. Have a deadline in place so both you and your relatives know when the money should be paid back in full.
A home equity line of credit can be helpful if you already have a primary residence. Your home is used as collateral, and there is less red tape to go through. Interest rates tend to be lower since your home is used to secure the loan, similar to a hard money loan. If you don’t make timely payments on your HELOC, though, your home can be seized. Use this if you’re confident in making payments to both a HELOC and your hard money loan at the same time.
A personal line of credit, similar to a HELOC, might be a better idea if you don’t have a home to use as collateral. It’s still a revolving line of credit, but you might face higher interest charges compared to a HELOC since it’s an unsecured line. It also means your credit score and credit history are more heavily scrutinized to see if you’re worthy of lending money to.
You can use your retirement savings as a down payment in a few different ways. You can take out a 401(k) loan – if your provider allows it – and make payments according to the terms your 401(k) provider sets. You could also use a distribution from your 401(k) if you’re using it as a first-time homebuyer, which means you don’t have to repay it. Generally, though, you should skip taking money from your future self, because there’s no way to make up for the money you’ve earned due to contribution limits. Even if the amount you’re borrowing isn’t that much.
Business loan or line of credit
For house-flippers that do this full-time rather than on the side, you might have a full-fledged business to run. If you need a down payment for your hard money loan, look into a small business loan or line of credit. Business lines of credit, like HELOCs and PLCs, allow you to borrow only what you need. In this case, just enough for a down payment. As a company, you may qualify for this alternative funding method.
- Is it for flipping a house? Short-term financing, like flipping a house or updating a rental property, would be a good time to look into hard money loans. If you’re looking to buy a home to live in, consider a conventional, FHA, or another type of traditional mortgage.