Westre Financial
Group, LLC

For real estate investors in St. Louis, hard money loans can be the lifeline that gets your property purchase or renovation off the ground. However, diving into a hard money loan without thoroughly understanding the contract can be risky. To help you navigate this process, we’re breaking down how to read a hard money loan contract step by step. By the end, you’ll be equipped to spot potential pitfalls and feel confident about your investment decision.

What is a Hard Money Loan Contract?

A hard money loan contract is a legal document that outlines the terms and conditions under which the loan is issued. Unlike traditional loans, hard money loans are asset-based, meaning the loan is primarily secured by the value of the property, not your creditworthiness. These contracts are designed for speed and flexibility, making them ideal for real estate investors.

However, the flexibility of hard money loans often comes with unique terms that you need to understand before signing on the dotted line.

Key Sections of a Hard Money Loan Contract

Let’s explore the critical components of a hard money loan contract and what to watch for in each section:

  1. Loan Amount and Funding Terms
    • What to Look For: Ensure the contract clearly states the loan amount you’re receiving. Hard money loans often fund 100% of the purchase price (as offered by Westre Financial Group, LLC), but confirm this is the case.
    • Tip: Check if the funding includes soft costs like closing fees or is limited strictly to the property’s purchase price.
  2. Interest Rates
    • What to Look For: Hard money loans typically have higher interest rates than traditional loans, often ranging from 8% to 15%. Ensure the rate is explicitly stated and understand whether it is fixed or variable.
    • Tip: Fixed rates are generally more predictable, but variable rates could fluctuate based on market conditions.
  3. Loan Term
    • What to Look For: The loan term specifies how long you have to repay the loan, often between 6 and 24 months for hard money loans.
    • Tip: Ensure the term aligns with your investment timeline, especially if you’re planning a renovation and resale strategy.
  4. Origination Fees and Other Costs
    • What to Look For: Origination fees, typically 1% to 3% of the loan amount, compensate the lender for processing the loan. Westre Financial Group, LLC charges a 2% origination fee, which is added to the loan amount.
    • Tip: Avoid contracts with hidden fees like credit check, appraisal, or application fees. Be cautious of vague terms that could lead to unexpected costs.
  5. Collateral Requirements
    • What to Look For: Hard money loans are secured by collateral—usually the property you’re purchasing. The contract should detail the terms for collateral ownership and the consequences of defaulting on payments.
    • Tip: Verify that the property valuation aligns with the loan terms. An overvaluation could put you at risk.
  6. Prepayment Penalties
    • What to Look For: Some lenders charge penalties if you repay the loan early, which can eat into your profits. Westre Financial Group, LLC does not impose prepayment penalties, making it a favorable choice.
    • Tip: If penalties apply, calculate their potential impact on your investment.
  7. Renovation and Rehab Restrictions
    • What to Look For: Hard money lenders often exclude funding for renovations. If you plan to use the loan for property improvements, ensure you have separate funds available.
    • Tip: Lack of rehab funding shouldn’t be a dealbreaker if the property’s value and profitability justify the upfront cost.
  8. Default and Foreclosure Terms
    • What to Look For: Understand what constitutes a default and the lender’s rights in such a scenario. Terms like foreclosure timelines and additional penalties should be clearly outlined.
    • Tip: A reliable lender like Westre Financial Group, LLC works to keep borrowers out of bad deals, but understanding the default terms is critical for your protection.

How to Protect Yourself When Reviewing the Contract

Here are some practical steps to safeguard your interests:

  1. Ask Questions: Never hesitate to ask your lender for clarification. A trustworthy lender will patiently explain any ambiguous terms.
  2. Consult a Professional: If the terms are complex, consult an attorney or financial advisor familiar with hard money loans in St. Louis.
  3. Compare Contracts: If you’re considering multiple lenders, compare their contracts to understand the best terms available.
  4. Look for Red Flags: Avoid lenders with excessive fees, vague terms, or an unwillingness to discuss their processes openly.

Common Pitfalls to Avoid

  1. Underestimating Costs: Ensure you account for all costs, including property purchase, renovation, and soft charges like title insurance.
  2. Ignoring Local Expertise: Work with a lender experienced in the St. Louis market, as they’ll better understand local property values and regulations.
  3. Over-leveraging: Borrowing more than you can repay could lead to financial trouble, especially if your property takes longer to sell than anticipated.

Why Choose Westre Financial Group, LLC?

Navigating hard money loans can be daunting, but with the right partner, the process becomes straightforward. Westre Financial Group, LLC stands out for its:

  • Low Costs: Competitive interest rates and no junk fees.
  • Local Expertise: Decades of experience in the St. Louis market.
  • Transparency: Clear terms with no hidden surprises.
  • Fast Funding: Loans are processed in-house for quick approvals.

When you choose Westre Financial Group, LLC, you’re not just getting a loan—you’re gaining a partner who genuinely cares about your success.

Conclusion

Understanding a hard money loan contract is essential for making informed decisions and protecting your investment. By paying attention to loan terms, fees, and collateral requirements, you’ll set yourself up for success in your real estate ventures.

If you’re ready to dive into St. Louis’s real estate market with a reliable lender by your side, look no further than Westre Financial Group, LLC. With decades of experience and a commitment to transparency, we’re here to help you succeed. Contact us today at (314) 626-4442 or visit our website to get started!