Questions About Hard Money Loans

[Ben Morand]

Hey guys! My name is Ben Morand and I am a 20 year old college student interested in buy & hold investing. Over the past few weeks, I’ve been working on analyzing a ton of deals, hoping to find one that meets my criteria.

My main issue is that as a college student, I don’t have a whole lot of money to put down, nor a steady income source. Because of this, I have been drawn to hard money as a way to initially fund my first deal.

I have read Brandon Turner’s book on Investing in Real Estate with No (and Low) Money Down and feel pretty confident with several different methods of creative financing. However, if anyone is willing to help me out, I have a few questions left about hard money loans.

1) How are these loans generally structured? I know they tend to be shorter payback periods (ex. 5 years instead of 15-30 years). However, with this, are they generally more so balloon payments or traditional monthly payments? It seems as if, with such a high interest rate and short payback period, these loans would be astronomically high payments if not structured right.

2) How long does one generally have to hold a hard money loan before they can refinance to a traditional 30 year fixed rate? I know you need substantial equity in a property, so this number will vary from person to person, but generally, will it have to take 6 months to a year, similar to an FHA to conventional refinance, or can the refinance take place within a few months?

3) How likely is it that a hard money lender would fund the entire purchase? With this, do they often require some sort of collateral to compensate for the risk that they are taking?

4) When refinancing into a conventional loan, do the banks require additional income beyond the rental income in order to meet the income requirements (even if I am cash flowing positively with my property)? I have no other debt, so my DTI would be solely based on my rental property.

Thank you in advance to everyone that is willing to help! I know some of these questions might seem a bit naive, but I am just trying to understand this process a little better so that I can strategize how I will finance my first rental property. I am sooo hungry to get started in this industry so I want to learn all I can and apply it as soon as possible.

Thanks everyone!