Without a doubt, the biggest factor that goes into purchasing property - for business or personal reasons - is whether or not it’s financially feasible. Not to mention, by taking out a real estate loan to make your purchasing dreams a reality, the interest rate will surely come into play. Just one or two percentage points on the interest rate can make a significant difference to your monthly payments, which is why many property buyers keep a close watch on mortgage rates as they prepare to make their purchase.
What Are The Current Conventional Mortgage Rates?
At present, real estate loan rates for commercial property are hovering between 5% and 6%, while conventional mortgage rates (such as those for a 30-year fixed rate mortgage) are around 4%, with 15-year loans coming in at 3.375%. The good news is that conventional rates are still quite a bit lower than they were at the height of the real estate bubble in 2006 when they were over 6.5% (and even lower than they were earlier in the decade - in 2000 they were consistently around 8%!), however they’re beginning to creep higher than they have been in recent years.
What Are The Current Hard Money Loan Rates?
Hard money loans and conventional loans, while in essence are the same thing - loaning funds on interest - are actually quite different. For starters, hard money loan rates don’t follow the same standards that conventional loans follow, meaning the rates aren’t as uniform across the board. Rather, the rates are set by the individual lending institution and are based on the feasibility and profitability of the individual project, as well as on any previous relationship that the borrower might have with the lender.
To be frank, hard money loan interest rates are going to come in much higher than conventional loan rates, but there are advantages to getting a hard money real estate loan versus a conventional loan for your next investment project. One of the biggest advantages to getting a hard money loan is that the lender is typically more willing to lend on distressed properties that are intended to be fix and flips. In fact in some cases, fix and flips are a hard money lender’s specialty. Conventional lenders, on the other hand, tend to lend on single or multi-family residential properties that don’t require major construction, as most banks will not lend an amount over the appraised value of the home. Additionally, hard money loan terms are typically much shorter - sometimes as short as 12 months - because the lender is anticipating making their money back with the sale of the flipped property, whereas conventional loans are most popularly lent out in 30-year terms.
How Can I Secure A Great Mortgage Rate?
Just because the mortgage rates look favorable, doesn’t mean that every applicant is qualified for the lowest rates - and that goes for both conventional loans and hard money real estate loans There are a few things that you can do, however, to ensure that you’re on the right track to getting a low rate. One of the most obvious things to do is make sure your credit score is doing well - the higher your score, the lower your rates. If your credit score isn’t in the best shape there are steps you can take to get it back into order, although these are things that could take a period of months (or even years) depending on what you’re dealing with, so be prepared for a bit of a delay.
Another factor is, probably unsurprisingly, your down payment. The more money you’re ready to put down, the more you’re able to show the bank that you mean business - and that you’re probably responsible enough to continue bringing in enough money each month to pay your mortgage. It should be noted, however, that if a large chunk of your down payment is coming as a gift from a friend or relative you’ll not only need to disclose that, but you’ll also need to get a notarized letter from the gift giver and probably let the funds sit in your bank account for a couple months so that the bank can have a sense of security about the funds.
Finally, when working to secure a hard money loan be certain that you’ve done your research and have adequately prepared your project plan. The lenders will look at the property you’re intending to buy (the type of property, the location of the property, the strengths and weaknesses of the neighborhood, comparable properties that have recently sold, etc.), the probability of profitability after the flip or throughout the duration of the loan, and past, current, and future market trends and forecasts. They’ll also have questions about the materials and contractors you’re using, as well as your timelines and anticipated date of completion. If you can show the lender that you’ve done your research and that the property will be finished on time, on budget, and to a high standard and will do well in terms of neighborhood comparables, you’ll greatly increase your chances of securing the loan.
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