by New Wave Loans | Sep 24, 2023 | Lending
Flexibility is a word with a lot of meaning in the finance industry. Enter the world of flexible loans, a type of financial instrument created to give borrowers the kind of flexibility that regular loans occasionally lack. In this thorough guide, we will dig into the nuances of flexible loans, looking at their definition, advantages, possible drawbacks, borrowing limits, eligibility requirements, application procedure, and much more. Read on if you are interested in learning more about the world of flexible finance.
How Does Flexible Financing Work?
Introducing the versatile financial solution you have been looking for all this time, flex loans. With a flex loan, everything is in your hands. Imagine having a dedicated credit line at your disposal, ready to be drawn upon whenever you need funds. The appeal of flexible loans lies in their simplicity: you borrow the exact amount you need and only pay interest on the amount you borrowed. A monthly minimum payment is all you need to meet to repay the borrowed amount. This is exactly the same as any credit card payments you have made before.
But that is not everything there is to it with flexible loans. What truly sets flex loans apart from the crowd of personal loans and other types of financial assistance is their inclusivity. No matter if your credit score is not as good as you would want it to be or if your credit history has seen better days, with flexible loans you have nothing to worry about.
Now, as you go on this financial journey, take into consideration that knowledge is the greatest asset you can have. Whether you choose the path of a flexible loan or explore other options, such as personal loans, you need to be cautious as well as understand the cost implications over time. The world of borrowing is extremely fast-paced, and in order to navigate it successfully you need to remain vigilant at all times. This way, you can foresee the changes in the financial landscape, ensuring that you are ready for everything that awaits you on the road ahead.
So, why wait any longer? Unleash the potential of flex loans and personalized credit limits – the cornerstones of a brighter financial future. Your aspirations, your terms. That is the advantage of flex loans.
Pros and Cons of Flex Financing
Taking a look at the intricacies of the landscape in which flex loans operate, we can distinguish the opportunities they provide us as well as the drawbacks they possess. Now, let’s go into more detail about the pros and cons of flex loans.
Pros
Easy to qualify for: The accessibility of flexible loans is one of its most notable benefits. Even if your credit score shows signs of previous financial difficulties, flex loans frequently reach out a friendly hand. Flex loans defy conventional lending organizations’ use of credit ratings as a criterion for admission, providing a more open path to financial aid.
Flexible terms: A flex loan represents a financial safety net that is always available. This financial instrument opens the door to a revolving line of credit in addition to giving you a one-time cash injection. Within the boundaries of your credit limit, you are permitted to borrow, payback, and borrow once again. This convenience makes sure you are ready to handle unforeseen costs or grasp possibilities when they present themselves.
Fast approval: Timing frequently plays a crucial role in the realm of finance. Flex loans have a faster approval procedure and are designed for the fast-paced lifestyle of today. Flex loans are created to quickly check your eligibility and offer you the money you need, a key feature when unexpected financial demands emerge. Traditional business loans may need a significant waiting period.
Cons
That being said, even with the pros we just mentioned, it is important that you are able to look at the situation from all angles. Taking into consideration the potential drawbacks of flexible loans is a must if you want to avoid unnecessary complications. Now, let’s dive right in.
Higher interest rates: The drawback of flex loans is that they may have interest rates that are significantly higher than those of conventional loans. The Annual Percentage Rate (APR) can occasionally skyrocket to a startling 200% or higher. It is important to balance the ease of immediate access to cash against the long-term financial effects of these higher rates, despite how appealing it may seem.
Minimum payment: The minimal payment for a flex loan might not be sufficient to pay off the accruing interest and fees. Thus, your financial responsibilities may be prolonged and your debt may remain mostly constant over time. Making a thorough repayment plan that guarantees your progress and that you are moving toward debt freedom is essential.
Debt cycle: The credit line on a flex loan’s revolving basis may be both a blessing and a curse. It allows you freedom but also requires discipline. Some debtors may become trapped in a loop of borrowing, repaying, and borrowing once again, which results in an ongoing debt cycle. To avoid this possible trap, caution and financial restraint are essential.
How Much Can You Borrow with a Flex Loan?
The world of flex loans reveals a lending environment that is closely related to your preferred lender. Flex loans allow you to borrow money, but how much you may borrow depends on both the policies of the lender and your individual situation. There are several systems in use, and some lenders may look closely at your income when determining your credit limit. With this strategy, the credit limit is adjusted to reflect your financial situation while also demonstrating your capacity to handle payments. Flex loans actually provide a variety of borrowing options, starting with modest sums of $100 and going all the way up to thousands of dollars. This kind provides the adaptability required to meet a range of financial demands.
However, it is important to recognize a critical aspect when you explore the world of flex loans: borrowing ceilings. Flex loans often have smaller borrowing limits than traditional personal loans and personal lines of credit. it is best that you look further if your financial goals include considerable money requirements. There are several financing choices available, all of which are made to meet different borrowing requirements. When your financial goals need significant financing, looking into alternate options becomes a wise line of action. You may comfortably move toward your financial objectives by matching your aims with the most suitable loan option.
How to Qualify for Flexible Lending
A bright spot in the world of flex loans is a qualification route that is noticeably unhindered. When navigating this path, you will discover that the conventional criteria for good or exceptional credit do not have the same influence. In fact, the majority of lenders forgo the rigorous evaluation of credit scores entirely, freeing you from the burden of your credit history.
Flex loan lenders have established a financing environment that puts accessibility first. Their requirements are sometimes distinguished by laxity, which speeds up the approval process. A few crucial aspects are where these criteria take shape:
Application Process
Filling out a brief application form is the first step in getting started with a flex loan. A key component is disclosing important information about yourself and your income. The application form is made to take the least amount of time possible as part of this step’s efficiency design. You may give the relevant details in a matter of minutes, laying the groundwork for the steps to follow.
Proof of Income
The proof of your income is one of the main components of this qualification process. Lenders seek proof of your ability to repay the loan by requesting documentation attesting to your income. These records might include bank statements, tax returns, or pay stubs. This concrete evidence demonstrates your sound financial standing and gives lenders peace of mind.
Flex loan companies help people from all different financial situations by accepting these lax requirements. Flex loans embrace a world where opportunity meets accessibility, where the shadows cast by your credit history are cast aside, and where your capacity to manage your finances is highlighted.
How to Get a Flexible Loan
Beginning the path to a flex loan requires a number of calculated steps, each intended to give you the power to make wise decisions:
Shop Around
Keep in mind that not all flex loan programs are created equal. The first step is to conduct thorough research. Try to find a number of lenders who provide flexible loans. Investigate their offers, paying close attention to the subtle differences in borrowing restrictions, interest rates, related costs, and the conditions that govern your financial commitment. This comparison research provides the framework for your well-informed choice.
Initiate the Application
Convenience is a hallmark of the modern age, and applying for a flexible loan follows this trend. The majority of lenders support an online application procedure, which speeds up the process. However, it is a good idea to be aware that some lenders can demand an in-person application. Double-check your application’s correctness and make sure all required papers are included before moving further. This attention to detail prevents unneeded delays in the approval procedure and the final delivery of funds.
Acquire Your Funds
Your financial ambitions finally come true after you have the lender’s clearance. The lender starts the process of distributing the money, and it takes time. It may happen as soon as the day of approval, within 24 hours, or over the course of a few business days.
How Flexible Loans Compare to Personal Loans and Credit Cards
Making educated financial decisions requires comparing flex loans to other credit options, such as credit cards and personal loans. In order to better see the differences between these loan options, let’s go into more detail below:
Flex Loans
Type of Credit: Revolving credit.
Average APR: Up to 200% APR or higher (dependent on the lender and state).
Loan Amounts: Typically range from $500 up to $5,000 (dependent on the lender).
Loan Terms: Offers flexibility in repayment terms.
Personal Loans
Type of Credit: Installment loan, repaid in fixed payments by a specified term.
Average APR: Varies.
Loan Amounts: Range from $600 to $100,000 (with Credible partner lenders).
Loan Terms: 1 to 7 years (dependent on the lender).
Additional: Personal loans tend to have lower interest rates compared to flex loans.
Credit Cards
Type of Credit: Revolving credit, allows ongoing borrowing without a set payoff date.
Average APR: Around 16.28%.
Credit Limit: On average about $30,000 (potentially up to $500,000 based on credit).
Additional: Credit card interest rates can be higher than personal loan rates, but generally lower than flex loan rates.
Personal Loans
The repayment schedule for a personal loan is established over a certain duration and is based on the installment model. Personal loans frequently include cheaper interest rates compared to revolving credit options like credit cards and flexible loans. A personal loan’s funds are given in one lump payment, providing financial certainty. The funding period often lasts a week or less, with some lenders even offering same-day cash.
Credit Cards
Credit cards are a type of revolving credit, enabling continual withdrawals without a set due date, similar to flex loans. Despite the fact that (depending on your credit) credit card interest rates might be higher than personal loan interest rates, they are typically still less expensive than flexible loans. The amount of interest charged on a credit card depends on your balance and whether you pay it off by the due date each month. Depending on the card’s conditions, it is important to take into account potential additional costs like yearly fees or cash advance fees.
Final Thoughts on Flex Loans
Flexible loans are unique in the world of borrowing because of their adjustability and inclusion. They provide a useful solution for varying financial demands with specific credit lines and straightforward conditions. Make educated decisions by assessing their benefits and drawbacks to achieve more financial control.
by New Wave Loans | Sep 21, 2023 | Financial Decisions, Lending
In the realm of finance, loans are essential for both individuals and companies to achieve the goals they have set. They provide a way of gaining access to money that may be required for a number of things, ranging from financing a new company endeavor to purchasing a property. Loans occur in a variety of forms and sizes, each one designed to satisfy certain requirements and conditions. Making wise financial decisions requires an understanding of the many types of loans that are available. In this article, we will dig into the world of loans and examine the various kinds that might offer support for handling financial obligations and objectives.
If you are interested in the topic or if you are looking to find the best loan for you, we recommend that you read on. So, sit tight and let’s dive into the various loan types and what they offer.
How do Loans Work?
Loans are what keep the wheels of economic growth rolling. They can be grouped according to what they are used for or how they work. Several basic terms for loans should be familiar to you in the world of lending; a world inhabited by banks, credit unions, and internet lenders. Let us set out on a journey to interpret the terms and learn more about the workings of loans, which are frequently concealed behind the thick walls of financial transactions.
Secured vs. Unsecured Loans
Secured Loans: Picture an agreement between a borrower and a lender in which each party owns a piece of the puzzle. Secured loans are created as an agreement backed by a valuable asset that you value. Similar to a security deposit on a loaned trust, this asset is used as collateral. In the event that you are unable to complete your repayment plan, the lender has the right to seize the collateral in order to recover their investment and pay off the debt. Secured loans are fundamentally a careful mix between security and risk.
Unsecured Loans: Unsecured loans are those that are made without the support of any type of collateral. These loans are based on your assurance that you will pay them back, with your creditworthiness acting as the cornerstone of this business deal. Unsecured loans sometimes have higher interest rates since there is no physical safety net, which reflects the inherent risk to lenders. With these loans, you enter the world of credibility and trust, where your credit history showcases your ability to make payments on time.
Interest Rates and Flexibility
Revolving Credit: Think of your financial story as a painting that you would do on a canvas. With the exception of a fixed credit limit, revolving credit offers a blank canvas where borrowing is unrestricted. Every billing cycle comes to a point where you must decide whether to pay back the whole amount you borrowed or let some of it roll over into the following month. Although freedom is alluring, caution serves as a compass to help you navigate the confusing web of potential interests.
Interest Rate: Variable interest rates, on the other hand, are based on a benchmark rate that is sometimes referred to as the prime rate. Your interest rate changes in step with this benchmark. Your interest rate will increase if the benchmark rate does, which might alter your monthly payments. Your borrowing expenses are made more unclear by this dynamic nature.
What Types of Loans Are There?
A variety of loan types are available in the world of financial solutions to meet different demands. These numerous choices offer a safety net in case financial needs arise. Let us explore the many loan alternatives and the distinctive qualities that make them unique from one another.
Personal Loans: Catering to Your Versatile Needs
A flexible alternative, personal loans provide you the freedom to distribute money according to your own needs. These loans provide borrowers the freedom to use the money however they see fit, unlike loans with predetermined uses. Personal loans are there as dependable partners for any event, whether it be an unanticipated emergency, a happy wedding, or house upgrades. Their unsecured nature, which does not require collateral, is an attractive aspect. The range of interest rates is wide, from constant fixed rates to flexible variable rates. Repayment periods also range quite a bit, from a few months to several years, giving borrowers the opportunity to match their financial obligations with their ability and objectives. As a result, personal loans become a powerful tool in one’s financial toolbox.
Auto Loans: Paving the Road to Vehicle Ownership
With auto loans, the path toward car ownership becomes faster and easier than ever. These loans make it possible for borrowers to buy the desired car by allowing them to borrow the car’s price minus the down payment. The car itself serves as security, giving lenders access to it in the event that payments are not made as agreed. Loan periods span from 36 to 72 months, while there is a growing tendency toward longer terms as a result of rising car expenses. Careful evaluation of factors including the loan period, interest rate, and overall cost is crucial when obtaining a vehicle loan. This guarantees a simple transition into the world of automobile ownership.
Student Loans: Navigating the Terrain of Education Financing
The pursuit of education frequently calls for financial support, and in this situation, student loans stand out as a crucial tool. Federal and private student loans are the two primary types that are recognized. The U.S. Department of Education, which supports federal loans, offers alluring benefits including deferral, forbearance, forgiveness, and choices for income-based repayment. It is noteworthy that federal loans frequently avoid credit checks, maintaining consistent conditions and interest rates. Private student loans, in contrast, involve credit checks and have a wide range of terms, interest rates, and fees. This difference enables people to make well-informed decisions about how to pay for their educational endeavors while skillfully managing the weight of student debt.
Mortgage Loans: Opening the Doors to Homeownership
Mortgage loans bridge the gap between desire and reality by serving as the key to opening the doors to homeownership. After deducting the down payment, this financial method makes it possible to borrow the whole purchase price of the property. The property itself serves as collateral in this transaction, giving lenders recourse in the event of payment irregularities. Usually, a mortgage must be repaid within 10, 15, 20, or 30 years. Mortgage loans include both traditional alternatives—without government insurance—and options supported by the government, such as FHA and VA loans. These loans provide flexibility in the form of yearly adjustable rates or fixed interest rates that remain consistent over the course of the loan. This versatility gives borrowers the freedom to personalize their borrowing tactics to suit their particular needs.
Home Equity Loans: Transforming Equity into Financial Opportunity
There are ways to use the equity in your house as a source of funding, including home equity loans and home equity lines of credit (HELOCs). Home equity loans provide borrowers with a large payment, which they then repay over a certain time. HELOCs, on the other hand, offer a revolving credit line similar to a credit card and permit withdrawals during a predetermined “draw period.” These alternatives come with different payback conditions; home equity loans have fixed interest rates whereas HELOCs may have variable interest rates. Both options provide ways to pay for different costs, but choosing the best one requires a careful evaluation of one’s financial situation.
Credit-Builder Loans: Crafting a Strong Credit Profile
Credit-builder loans provide a helpful route for people looking to improve their credit scores. These loans frequently avoid credit checks since they are designed to help those with little or no credit history. A credit-builder loan requires you to put the whole amount of the loan into a savings account and then make regular monthly payments over a period of time. In the event of a successful repayment, the borrowed money and any accumulated interest are returned. Making sure that lenders report payments to the main credit agencies before taking out a credit-builder loan increases the potential influence of timely payments on one’s credit standing.
Debt Consolidation Loans: Streamlining Financial Responsibilities
Debt consolidation loans simplify responsibilities with the goal of financial clarity by combining high-interest debts, such as credit card bills, into a single loan. If the new interest rate is less than the current rates, this strategy may result in cost savings. Beyond consolidating many payments into one to ease repayment, this strategy can raise your credit score by lowering your credit use ratio. It is crucial to weigh the effects of a debt consolidation loan on your entire financial situation among a range of interest rates and payback terms.
Payday Loans: Caution on the Path of Quick Relief
Payday loans may seem like a quick fix, but despite their high fees and possible debt cycle, it is best to act cautiously while considering them. These short-term loans offer quick fixes but frequently come with significant costs that are equal to extremely high annual percentage rates (APRs). The next payday is usually when repayment is due. Payday loans are convenient, but they can result in a loop of renewals and accruing fees, thus trapping borrowers in a debt cycle. When faced with an emergency, it is wise to choose alternate resources like credit cards or personal loans to avoid being trapped in debt.
What to Consider With Different Kinds of Loans
Irrespective of the type of loan, it is normal to feel overwhelmed while starting down the path of new debt. Before you sign on the dotted line, there are a number of things you should carefully consider. Even the smallest things might result in later consequences if they are overlooked.
Credit Scores: The Foundation of Loan Applications
It is wise to keep a close check on your credit score and reports before you go into the realm of loans. The tone of your encounters with lenders is defined by these numerical representations of your creditworthiness, which frequently include the likes of FICO Score and VantageScore. They choose the lenders you might be able to deal with and the APRs you might be able to get. A strong credit history can open doors to lower APRs, which will result in lower expenditures over the course of the loan.
Loan Purpose: The Blueprint of Borrowing
Choosing a loan with a flexible purpose does not completely exclude you from telling your lender what you want to use the money for. Even if the loan allows you flexibility, the lender may want to know how you plan to use the money. Loans having a specific purpose, like mortgages or auto loans, may require you to provide evidence of the item you intend to buy with the money you borrow. This guarantees openness and matches the lender’s requirements with your borrowing objectives.
APRs: Unveiling the True Loan Cost
Since they include both interest rates and fees, annual percentage rates, or APRs, are the beating heart of loans. This cost of borrowing is totaled up in this number. A strong credit history is the key to obtaining lower APRs, which lessen the cost of the loan. Improved APRs and a consequent reduction in debt are both results of improving your credit profile.
Repayment Terms: The Time-Value Balance
Your financial path is greatly impacted by the time aspect of loan repayment. Your repayment period’s duration has a big impact on the APRs you will see. Higher APRs frequently go hand in hand with longer repayment terms, but they have the benefit of lower monthly payments. Shorter repayment terms, on the other hand, typically come with lower APRs but greater monthly responsibilities. This temporal equation must be balanced in order for your financial strategy to match your capabilities and aspirations.
Borrowing Limits: Within Reach or Out of Grasp
Your income, the loan’s intended use, and your credit history are just a few of the variables that will determine the extent of your borrowing activities. The danger of borrowing limits is quite real. However, it is important to understand that getting a large loan amount may be difficult if your credit history has been ruined. Your borrowing plan is realistic and feasible when you are aware of these constraints.
Secured vs. Unsecured Loans: The Risk Spectrum
The distinction between secured and unsecured loans has to be stated clearly. Your APRs and even the effects of failing on a loan are heavily influenced by this categorization. Due to the decreased risk they pose to lenders, secured loans often have lower APRs. Collateral serves as a barrier of defense. However, lenders have the right to seize the collateral in the unfortunate event of a default. On the other side, unsecured loans lack collateral, resulting in significantly higher APRs. In the case of default, however, the lack of collateral protects your assets from direct lender interference.
Best and Worst Rates
Interest rates have a significant impact on the financial industry. Understanding interest rate dynamics is essential whether you are taking out a personal loan or a loan from a commercial bank. Let us explore the gap between the best and worst-case situations as we explore the interest rate environment.
The Interest Rate Spectrum: A Glimpse into Averages
According to data from the Federal Reserve, the average interest rate for a 24-month commercial bank loan was 11.21% in the first quarter of 2023. This numerical illustration captures the whole range of interest rate dynamics. It is important to understand that rates might vary greatly, sometimes far surpassing the average.
The Peaks and Valleys: Contrasting Extremes
Rates can differ greatly, sometimes exceeding the norm by three times. Consider Avant, for instance, where APRs range from 9.95% to 35.99%. This discrepancy draws attention to the gap between the best and worst-case scenarios for interest rates.
The Ladder of Rates: Scaling Credit Ratings and Assets
The best interest rates are only available to those with excellent credit scores and sizable financial reserves. Rates that reflect their creditworthiness and financial stability are given to these people in return. On the other hand, those who are forced to make difficult decisions because of their financial situation frequently pay the highest interest rates.
A Personal Loan’s Role: A Prudent Path
A personal loan is a wise decision when borrowing a small amount that can be readily returned in a short period of time. This method of borrowing offers the adaptability required to manage current financial demands while assuring a few-year repayment horizon. The personal loan calculator is an essential tool in this process since it determines whether interest rates are feasible given your financial situation.
Bank Loan vs. Bank Guarantee
Understanding the difference between a bank loan and a bank guarantee within the landscape of financial systems is crucial. These two things have different functions and each one is important in its own way. Let us start off with an attempt to comprehend the subtleties that distinguish them.
Bank Loan: Unveiling the Borrowing Path
An arrangement to borrow money from a financial institution and then repay it together with the agreed-upon interest is known as a bank loan. This type of finance is essential for meeting various financial demands, whether they are personal or professional. The borrower is accountable for abiding by the repayment conditions agreed upon and for prompt repayment of the principal amount owing as well as any accumulated interest.
Bank Guarantee: Pledging Assurance to Third Parties
In contrast, a bank guarantee takes on an entirely new role. On behalf of one of its clients, a bank issues a guarantee to a third party. This assurance’s main purpose is to provide customers peace of mind that they will get what they paid for. The third-party reserves the right to ask the bank for payment if the client fails to uphold his or her obligations under the terms of the agreement.
Guarantee Dynamics: A Closer Look
In transactions involving a bank’s small business clients, bank guarantees are frequently used. Certain circumstances could apply, for example, if a corporation accepts a contractor’s proposal. The need for the contractor’s bank to provide a guarantee of payment may be an essential component of these criteria. This guarantee acts as a safety net, guaranteeing the company that, in the event the contractor is unable to uphold its end of the bargain, the bank will step in to fulfill the defined financial responsibilities.
What Is the Fastest Way to Borrow Money?
Finding the quickest method of borrowing money is essential in a world where everything moves fast. There are several paths, each with its own characteristics and repercussions. Let us go on a journey to understand the quickest ways to get money when you need it.
Credit Card or Cash Advance: Rapid Access
A cash advance or credit card appears as an immediate option when time is of the essence. These financial tools are used at ATMs or points of sale, making them quick ways to obtain money. The procedure is shortened, guaranteeing quick access to the required sum. It is important to remember, though, that convenience could result in higher credit card debt interest rates.
Personal Loans: The Balancing Act
Personal loans are a good option for obtaining money, but they might take a while to process. A credit check and paperwork may be required in order to obtain a personal loan, which might significantly lengthen the procedure. A more thorough evaluation of borrowers’ creditworthiness and financial capabilities is frequently required for these loans. Personal loans provide a balanced approach, assuring appropriate lending procedures, although not being as quick as credit card transactions.
Payday Loans: The Cautionary Route
Payday loans, for example, may guarantee quick access to money. However, exercise caution. These loans frequently include predatory interest rates designed to trap debtors in a never-ending debt cycle. Although the procedure could be accelerated, negative financial effects might result. The benefits of quick cash must be weighed against the long-term effects of high-interest rates.
Final Thoughts on Types of Loans in Finance
Borrowing money is a fundamental part of life for many people. The way you set out on this adventure and the price you pay for the privilege, though, are two very different things. Look for opportunities that have reasonable interest rates and fit in well with your financial strategy. This thoughtful strategy ensures that you will be able to pay off your debt efficiently and quickly.
by New Wave Loans | Aug 25, 2023 | Lending
Are you looking into private mortgages in order to secure a loan for your future house? If the answer is yes, then following the tips we are going to go over in this article can help you a lot. This way you can make sure that the process of acquiring a private mortgage goes smoothly for both you as well as your lender, making everyone happy. In addition to going over the most notable tips you can use, we will also cover the benefits as well as risks that come with private mortgages. Moreover, we will also go over how to find a private money lender and how to successfully get a loan.
With that out of the way, if you want to learn more about private mortgages and how you can use them in order to secure a home mortgage, we recommend that you read on.
What is a Private Mortgage?
The concept of a private mortgage is not that familiar to the majority of people. Usually, the term that is more used is private mortgage insurance. That being said, even though the private mortgage is not as popular of a method compared to other financing ones, it is still used.
The most important thing to understand is that private mortgages are not provided by a bank or other mortgage institutions. On the contrary, it is provided by another private source. This source can either be a family member, a friend, some acquaintance, or some other private source such as a business. Basically, it is a loan provided by someone who is not licensed as a mortgage provider.
What are Private Mortgage Lenders?
As we have just mentioned, a private mortgage lender is someone who is not a licensed mortgage provider. Getting a home loan this way is much faster compared to a traditional mortgage as the lender requirements are not strict meaning it is easier to qualify for one.
This means that private mortgage lenders will not base their decision on your credit history or if you have a bad credit score, or even if you already have loans such as student loans. Rather than that, they will most likely base their decision on your ability to put down a down payment and the property serving as collateral.
One thing that you need to keep in mind is that private mortgage lenders are not regulated in the same way as credit unions or banks which are considered traditional lenders. This means that if something goes wrong, you will not have the same level of protection as you would if you got a loan from a traditional mortgage lender. However, private lenders still have to register with the state authority in their area of operation.
When you get a loan from a private lender for home buying, it will be the same as a regular home mortgage. You will have to make a monthly mortgage payment with interest until you repay the loan in the agreed amount of time. The last thing to keep in mind is that the lender might do an underwriting process and that the property you buy will serve as collateral.
Tips for Private Mortgage Financing
Here are the 4 most notable tips you can use to make the private mortgage work:
Everything Should Be in Writing
No matter the case, when you are dealing with a private mortgage loan, it is in your best interest to put everything in writing. Even if you are dealing with your close family members, you should document the mortgage in the form of a promissory note. This is a legal document that holds the information about the owed amount and who owes it. Additionally, you should register the mortgage and the deed with your local authorities as well as the IRS. If you need help, hiring a lawyer and a CPA is the best way to make sure everything goes according to plan.
Interest Rate
When we consider that the private lender is our family member, the majority would think that the interest rate should not be charged. This might not be the best course of action. Charging some interest is best for both parties. This way the lender will be able to protect their funds from inflation, while you as a lender can achieve certain tax benefits.
Discuss Contingencies
No matter who is your lender, discussing contingencies will help both parties avoid unnecessary problems. This includes situations such as what will happen if you miss a payment or restructuring in order to avoid a default. If you want help with this process, hiring an attorney is the way to go.
Secure the Credit
If you decide to go with a private mortgage over the conventional one, getting credit for your mortgage payments may be difficult. In order to get the credit reporting bureaus to count your payments towards your credit score, you need to send copies of the mortgage agreement as well as the proof of the payments you made to the bureaus together with the letter where you will request that these payments are included on your credit report.
Benefits and Risks of Private Mortgages
Now, we will go over certain benefits as well as risks that come with private mortgage loans.
Benefits
To begin with, one of the most notable benefits of private mortgage loans is how easy you can get one compared to the more conventional ones. This ease of qualifying comes from the fact that you will not have to worry about a long list of documentation that would be necessary if you wanted to get a loan from a bank. With a private lender, it is much easier to get a loan, especially if they are your friend or family member.
Next up, a private mortgage loan can serve as a great financial advantage. If you get a loan from a family member, it means that you will most likely pay a lower interest rate; on the other hand, the lender will be able to earn more through interest rates than they would from a savings account.
Risks
First things first, a private mortgage can seriously impact your relationship with the lender. This is something that needs to be considered carefully. A situation may arise where you as a borrower find yourself having problems meeting the payments. On the other hand, the same situation may happen to the lender. It is important to determine if the lender can comfortably provide the loan without any high risks involved. No matter what, discussing everything and making a solid plan is the best way to go about private mortgages in order to avoid damaging your relationship.
Furthermore, additional problems that you might face are fluctuations in property value, and maintenance costs which can get expensive and might influence your ability to make the mortgage payments and the impact on your taxes. All in all, before you decide to get a private mortgage loan, it is in your best interest to cover everything with your lender in order to avoid as many problems as you can.
How to Find a Private Mortgage Lender?
Finding a private lender can sometimes be harder than you might think at first. If you do not have an immediate family member or a good friend that you know can provide you with a loan, you will have to put in some work in order to find a lender.
To begin with, you will have to learn how private loans work. Gather as much information as you can before you start looking for a lender. Next up, you need to start the process of building a strong network. This way, you will gather potential private lenders that you can work with in the future.
Furthermore, create a solid portfolio that you can present and learn how to identify a perfect lender for your goal. The last thing you need to do is to convince the hard money lender and get your loan.
by New Wave Loans | Mar 31, 2023 | Financial Decisions, Lending, Property
Flipping a house is a term that is commonly used in the real estate industry. It refers to the process of buying a real estate property, for example, a house, fixing it quickly and flipping it for more than you have initially paid for it. As with anything else of this nature, there are certain risks that come with it. The process can get quite expensive with the risk factor that can result in you losing your entire investment.
Due to this exact reason, many investors opt to go for financing for house flipping. Loans for flipping homes became a staple in the industry as they significantly reduce the risk factor for both investors as well as lenders. A flipped house is a quick way to make a profit if you know what to do and how to do it.
If you are interested in the business of flipping houses for a profit, there are certain things you need to know first. With so many different home flipping loans, it is important that you know which one suits you the best. Additionally, if you are not sure how to get financing for flipping houses, then you are in the right place. We will help you determine the best loan for flipping houses in your current situation. Moreover, we will cover the options you have as well as all of the how-to questions you might have. Now, let’s dive right into the topic.
How to get a loan to flip houses: Getting started
To begin with, depending on what flip loan you are planning to get, there are certain things you need to worry about first. To get any kind of money loan, every lender will look at your personal finances. This is important because they need to be sure that you will be able to pay back the loan they give you with the added interest. Specifically, they will look at your income, credit score, debt level, business plan, and lastly your assets.
Income
When it comes to it, lenders will look at every source of income that you have before they provide you with any financing options. This includes everything from your salary, rental income, investment dividends, as well as your overall monthly cash flow. Having a higher income is not technically necessary in order to get a loan, but it will definitely make your chances higher.
To go into more detail, lenders have a specific way to calculate your income. In most cases, they will take your hourly wage and multiply it by 2080 hours which represents your work year. After that, they will divide the result by 12 to get your overall gross income per month. Additionally, there are more details that you need to inform yourself about. For example, if you work a part-time job. In order to count it as a genuine income that your lender will consider, you need to provide proof that you worked at that job for at least 2 years. This includes any secondary job you are working at no matter what.
Furthermore, bonuses and overtime that you achieve at your job can also count as an income only if your employer verifies that it will remain a constant in the future. If not, then sadly it does not count as a source of income. Inform yourself beforehand if you want to know whether or not your source of income counts and can get you a better loan option.
Credit Score
The credit score is one of the best indicators to the lender if they should provide you with a loan or not. A good credit score shows your lender that you are a trustworthy borrower that pays their debts on time and in full. To be considered good, the minimum credit score you should have is 670, while anything up to 850 is considered amazing. Of course, the higher your credit score is the better, as it will make it easier for you to get a loan.
However, if you do not have that good of a credit history, all is not lost as you can still get a loan. That being said, you will most certainly have higher interest rates and fees to deal with because of that.
Furthermore, lenders also use a credit scoring system from which they can get predictions on your credit behavior. This will help them find out if you will be able to return the loan on time-based on the information they get from the credit card reports which show if you have any credit card debt.
As long as you do not have a bad credit score, your rates and fees will remain normal.
Debt Level
Another thing that a potential lender will look at is your debt to income ratios or DTI for short. With this, they can determine just what percentage of your income goes towards your monthly bills and other debts. Preferably, you should always have a debt to income ratio that is under 30%.
Having debt is not a bad thing. It might sound terrible at first, but with proper management, debt can serve as an asset. As long as you keep control, there is nothing to worry about. Additionally, debt consolidation is always an option. It allows you to take out a new loan in order to repay your current loans. The main reason why you would want to use debt consolidation loans is to end up with an overall lower interest rate that will give you lower payments each month.
Business Plan
Financing a house flip is a serious investment for a lender. Naturally, you will have to convince a lender that their investment will be worthwhile for them. This is where a business plan comes in. With a solid plan, your chances of getting a loan will increase drastically.
A good financing plan needs to cover several important parts. First of all, you will have to present just how much you expect the property in question to appreciate. Additionally, it is crucial that you state how much of the money you will designate as the renovation cost.
Lastly, you might also have to provide the lender with your investment history as well. This way they can feel reassured that you know what you are doing and that their investment is safe.
Assets
Your assets are also something a potential lender will be interested in. Everything from your stocks, bonds, crypto, commodities, savings, home equity, and real estate properties, all the way to retirement accounts is considered an asset. Considering that home flip loans are large sums of money, a lender needs to be sure that you can pay them back in the end.
They will want to know what assets you have to make sure that if the situation arises you will be able to sell them to pay them back. They might even ask you to put up several of your assets to serve as collateral. This should not come as a surprise or something negative. This way a lender only wants to assure that at the very least they can get their investment back as they are taking the majority of the risk when it comes to financing house flipping.
How to Get a Loan for Flipping Houses? – Top 6 Financing Options
There are several different methods of acquiring a flipping loan. Depending on your situation, some might offer better options than others. If you are somewhat new to the whole ordeal, then house flipping loans might be confusing to you. Here we will cover 6 types of loans that you can get in order to cover your house flipping project.
As a real estate investor, you need to be able to select the best loan option for you so you end up with a larger profit. Now, here are the 6 most popular house flipping loans currently on the market.
Hard Money Loans
To start with, we have hard money loans. These loans come from private lenders and are the majority of the time given as a type of short term loan. This is usually between 1 and 3 years. Additionally, a hard money loan is given from a pool of money that is funded by several wealthy individuals. Because of this, these loans do have a somewhat high-interest rate. They are also referred to as fix and flip loans because of how fast they are.
These loans are an amazing option for investors that need the funds fast. They are much more lenient on the requirements meaning you do not have to have a perfect credit score or small amounts of debt. Hard money lenders do not care about that as they will cover their investment with a property you are working with.
This way, you do not have to worry about your personal funds serving as collateral meaning in the worst-case scenario you will lose the property as collateral which covers both you and the lender. Of course, this is not an ideal situation, but considering that you get the funds fast and with few questions asked, the risks will be higher in comparison.
Private Investors
Private lenders are basically wealthy people that invest in real estate agents. These investments usually come with a steep price. This type of real estate investing is different as you do not pay the loan back with interest over a longer time period. Private money lenders will instead take part of the profit as a payment. This is usually around 50% and sometimes even more depending on the terms you agree to.
This type of loan is best suited if you are working with high-value properties in wealthier networking circles. The best way to find an investor like this is to contact your friends and family that might be well-off financially and can invest, or as an alternative, they can introduce you to someone that is able and eager to invest in your project.
This is a loan for flipping houses fast and the deals are rarely held back by documentation. Furthermore, the terms for these loans are completely negotiable so both sides end up happy.
Conventional Loans
Getting a loan to flip a house through conventional means refers to loans that are provided by banks or mortgage lenders. These traditional mortgages are best suited for investors that have a good credit score that is also followed by a high income. In these situations, investors are able to put a considerable down payment for the property in question.
Getting mortgage loans requires that you provide evidence that you will be able to pay the monthly payments without missing any of them. Due to this, it is required that you have a good credit score. This is anywhere from 670 to 850 credit score. Additionally, it is important that you have no bankruptcies or foreclosures that might stain your record. Lastly, your DTI, debt to income ratio, needs to be fairly low being about 40% or less while you also need to have a down payment that is 3% or more of the total price in order to qualify for traditional mortgage loans.
When it comes to mortgage rates, they are fairly low and the closing costs and fees will not be as high either.
Portfolio Loans
These loans are provided by smaller banks that are local to a certain area. The funds are in entirety provided by a bank. To qualify for this loan, you need to have a property deal ready before you even ask for a loan.
These loans are very flexible as in most cases you will not have to have a good credit score or a high enough income as long as you have a good plan. Furthermore, these loans are approved extremely fast. Once you qualify, you can expect to get a loan in as fast as a week or two.
Seller Financing
This type of loan is between a homeowner and the buyer of the property. This is a more personal loan in nature as there is no need for unnecessary documentation or long waiting periods.
If you have a lower credit score or no cash, without other options for borrowing funds, then this loan might just be what you were looking for. The payment is quite simple as it is completely negotiable. What you agree upon is what you will abide by.
Pros and cons of seller financing are that the terms are much more affordable, and the interest rates are higher compared to conventional loans.
Crowdfunding Platforms
This type of loan involves a number of private investors that pool together small sums of money in order to lend it to investors in need. What is great about this loan is that it helps investors that do not have well-developed networking connections.
In order to get this loan, you will have to be an experienced real estate agent. Most importantly, keep in mind that you will have to go through an interview process where they will determine if you can become a regularly active borrower.
A major benefit of this is that you will have access to a large sum of money which offers a better loan option compared to other loans.
Some flaws include sign-up fees as well as higher interest rates than other loans.
The Costs of Flipping a House
The process of flipping homes can be a great way to earn a profit. However, depending on what kind of property you want to flip, it can get expensive really quick. Because of that, flip house financing became a popular way of borrowing money for investors.
That being said, when you want to flip a house, not only do you need the funds to buy the property in question, but you also need additional funds in order to renovate it so you can sell it for a profit.
By borrowing money to make a quick fix and flip, you are in turn paying back more than you have borrowed in the first place. Due to this, when you add up all of the costs from purchasing to returning the borrowed amount plus interest, there is a great risk factor involved.
Even though there is a big potential to earn a lot of money, there are also risks that you need to understand before you start investing. Additionally, if you are not an experienced investor, many lenders will probably see you as too high of a risk to even consider giving you a loan. On the other hand, those who are willing to provide you with a loan will most definitely charge you higher interest rates and fees.
The main goal you should focus on is to find cheap properties where you have a much higher margin to make a solid profit.
Purchase Price
A purchasing price is the amount of money you need in order to buy the property in the first place. When you are borrowing money from a lender, you will still need to have at least some percentage of the price ready as a down payment. This can all vary depending on what type of loan you are working with. In general, a necessary down payment when you are working with a flip loan is about 20% to 25%.
Renovation Costs
The next expense on the line after you purchase a property is the renovation costs. In order to successfully sell a property for a profit, you need to make some improvements to said property.
That being said, depending on the size of the property and how much you have to invest in order to fix it will determine the renovation costs. For example, let’s say that the property in question is a smaller house. Depending on the severity of the renovations, you can expect to pay up to $10,000 in renovations. On the other hand, if the property is on the bigger side, these costs can easily jump up to $100,000.
This is why, before you get a flip house loan, it is crucial that you evaluate if the property is worth it in the first place. If you know someone that has worked in the industry for some time now and has the experience, ask them for advice. Bring them to see the property and let them help you during the evaluation.
If the property has structural damage then the profit margin may be too low compared to the risks you need to take.
Carrying Costs
The most commonly overlooked expense. Carrying costs are the expenses that you need to cover while you own the property. Many inexperienced investors tend to forget about them. However, if you do not take them into account when you are doing the math, you can very easily lose a major chunk of your profits.
First, there is interest. It is a percentage you will have to pay depending on the loan you go for. Second, you need to consider the costs regarding utilities. Electricity, water, trash removal, and gas all need to be paid for while you are the owner of the property. Third, homeowner’s association fees will also bring a monthly cost that you need to consider. Fourth, property tax is a big part of carrying costs. When you flip a property, you will have to pay a short-term property tax that will be the same as an ordinary income. Lastly, there is insurance. In order to get a loan, a lot of lenders will require that you first purchase insurance.
Selling Costs
The last thing you need to worry about is the selling costs. Even when you are selling the property, there are some costs that you need to worry about.
If you decide to hire a real estate agent to help you sell the property, you will have to pay a commission to the real estate agents, which is usually about 6% of the total selling price. On the other hand, if you decide to work on your own, you will have to spend money on marketing. Finally, you also need to consider escrow fees, recording fees, and title fees all depending on the terms you negotiate with your buyer.
Summary: Loans for Flipping Houses
To summarize, flipping houses provides a great opportunity for investors to earn money. That being said, in order to get into the business of flipping houses, you will need a sizable investment. Due to this investors turned to investment loans. However, it is crucial that you understand the risks that loans bring to your investments. Doing the necessary research is a crucial step before you rush into anything. Before you start looking into how to get a loan to flip a house, make sure that you know all of the potential risks and how to avoid them.
by New Wave Loans | May 6, 2022 | Lending
Over the years, hard money loans have become quite popular among investors looking for flexible financing options to fund their investments. The speed of processing hard money loans and the minimal requirements needed make these loans attractive, especially among real estate investors.
Unlike traditional bank loans, private money lenders offering hard money loans set their own lending rules and regulations. These loans have a shorter repayment period and slightly higher interest rates. The property to be purchased is also used as collateral. Hence the lenders do not focus much on the borrower’s credit history.
Private money lenders also have a short and simple underwriting process, making the loan application and processing fast and reliable. Below, we have discussed some steps that will help you when finding hard money lenders. Keep reading to get started.
What Are Hard Money Lenders?
Hard money loan lenders are private money lending companies that offer loans to individual or company investors in the real estate space. Every lender has some lending requirements that investors must meet before qualifying for a loan. Generally, these lenders will consider the investor’s real estate experience, the property’s value, and the borrower’s overall financial strength.
A real estate investor who wants to secure a good deal in the market will need immediate financing, often within a few days. With such deals, traditional financing options are too slow, thanks to the high competition from other investors. Therefore, hard money lenders provide the speed and convenience needed to close high-in-demand deals.
And regardless of the investment property you want to buy, you’ll always find the best hard money loan lenders that meet your investment needs. You just have to do thorough research in selecting the best lenders in the flooded market. Below are the key factors to look for in a private money lender.
What Makes A Good Hard Money Loan?
Before we look at how to find hard money lenders for real estate, we’ll first need to know what makes a great hard money loan lender. For most investors, a great lender will offer affordable rates, flexible terms, and faster loan processing. And while these are some of the key factors to consider, they aren’t the only ones. Here are the main aspects you should keep in mind throughout the lender selection process.
Reputation
Everyone wants to work with a reputed lender who will stick to their word and honor the lending terms and conditions. One way to score the reputation of a hard money lender is to check their years of experience in the lending business. A great lender is popular among real estate investors and has earned their trust. They also tend to have a loyal customer base and favorable lending terms, thanks to the high number of repeat clients.
Working with a reputed lender boosts your confidence. You’ll also have some peace of mind knowing that the lender is licensed, trustworthy, and insured. And like most mortgage lenders, hard money loan lenders are cautious of losing their best customers. So they will often listen to their clients and customize their services to suit their unique needs.
Affordability
Since most private money lenders do not look at the credit history, they take on more risk in their lending business. This increased risk comes with a higher cost in the form of fees and slightly higher rates. However, some lenders charge higher fees than others. A good way to check the lender’s fees is to ask for a full disclosure of the rates and any fees during the application process.
You don’t want to apply for private money loans with higher-than-usual rates or several hidden fees. This is a huge mistake that will increase the cost of your loan, eventually eating into your profits. Besides the fees and rates, you should also ask if there are any penalties associated with the loan. For instance, some traditional and even private lenders charge a penalty for repaying the loan before it matures. This can be quite inconvenient for investors who want to clear their loans before moving to other projects.
Speed and Simplicity
One of the major benefits of a hard money loan is the speed at which it’s processed. Unlike traditional mortgage or even credit card loans, hard money loans are often processed and funded within a week, if not days. This means investors can quickly close deals and move on to other investment projects.
Before applying for a hard money loan, ensure the lender will fund your project within a week or two. That said, fast loan processing doesn’t equal higher fees or strict terms and conditions. So always be on the lookout for opportunists using fast processing speeds to exploit desperate and unsuspecting investors.
The ease of loan application is another critical factor to consider. You don’t want to work with a lender with complicated loan application processes and inefficient bureaucratic procedures.
Client Experience
Client experience encompasses everything from how the private lender communicates with clients to how fast the loans are processed. The best hard money lenders treat their clients well and ensure their needs are taken seriously. One way to gauge the level of client experience is to check how streamlined and user-friendly the loan application process is.
Similarly, the lender should be flexible enough to adjust their loan terms, from fees and penalties to the repayment period. Every real estate investor wants their unique needs and preferences considered, and the best lenders will make this possible for their clients.
Finding Reliable Hard Money Loan Lenders
Now that you know the key aspects to prioritize when looking for hard money lenders, you must keenly compare the different lenders, score them, and choose the best one to work with. Here are some tips you can borrow to streamline the selection process.
Ask Around
The easiest and most reliable way to find the best hard money loan lenders is to ask for recommendations from fellow investors. A word-of-mouth referral is often accurate and reliable if the person you ask has some experience in the market and is close to you. Always inquire about the types of rental properties the lender accepts, the rates, processing speeds, fees, etc. That way, you’ll have enough data points to score the best lenders.
Check Customer Reviews
Once you have a couple of lenders in mind, you should proceed to do further research on the quality of their services. A good place to start is to browse some reputed third-party sites and check the reviews left by past customers. The best lenders will have more positive reviews and will even respond to negative reviews in a genuine and business-like manner. You should also take every review or comment with a pinch of salt. Remember, some lenders may hire people to write positive reviews for their companies so as to boost their brand reputation.
Book an Interview
Investing in a rental property is a huge commitment, so you should be ready to go the extra mile to secure the right financing. This could mean scheduling interviews with different lenders to ensure you make the right choices. During the interview, ask more about the terms and conditions, the fees, and penalties, if any. You should also pay attention to the lender’s communication skills and how well they respond to questions.
Look out for Red Flags
During the interview or afterward, you can visit the lender’s website to check if what they offer matches what they promise on the site. Some lenders tend to exaggerate the extent of their services only to give excuses afterward. For instance, the lender may promise lower rates and loan closing within 7 days only to add some fees and close the loan in two weeks.
To avoid such, you should know how to find hard money lender terms. That way, you can ask for further clarification to ensure that the lender won’t give excuses or change their mind somewhere along the way. Some of the red flags to look out for include:
- Lower rates are often below 6%. This often means there’s something the lender isn’t disclosing. Either there are several hidden fees, or they will suddenly update the rates later on.
- Poorly-articulated terms and conditions. This invites confusion and creates room for exploitation.
- Too-good-to-be-true requirements/procedures. If the lender doesn’t require collateral or has the bare minimum screening procedures, you should take time to question their business model.
- High upfront fees. New lenders that charge high upfront fees, often above a thousand dollars as application fees or for speeding up the closing process, could be typical scammers.
Boost Your Investments with Hard Money Loans
Hard money loans offer a great investment opportunity for real estate investors looking for a quick and flexible financing option. The loans come with slightly higher rates, but the quick processing speed and convenience outweigh that extra cost. That said, hard money loans are best used for investment purposes due to the short repayment period.
Whether you are a new or veteran real estate investor, hard money loans will work for you. The option to close these loans in a few days means you can secure great deals before your competitors without incurring extra costs. However, all these benefits begin with choosing the right lender. The tips we’ve highlighted above aren’t exhaustive but will give you an idea of what to look for the next time you need a hard money loan.
