Most real estate investors know that ever the 2008 crash, getting financing is difficult. Mortgages have been around for hundreds of years. In that time, major corporate banks have boiled the underwriting of home mortgages down to a science. After the great recession, though, things have changed. The strict lending standards banks impose now, are in place to ensure a minimum of defaults, keeping the interest rates and fees low for customers. On the other hand, the stringent requirements mean that nearly all mortgage lenders will take on less risky loans. That means getting a loan for an investment property is close to impossible. If you’re in this situation, a hard money loan might be right for you.
Connecticut Hard money loans are a powerful investment tool
For smart real estate investors, an alternative form of financing is a hard money loan. Unlike mortgages, a hard money loan is typically issued by an individual investor or a group of private money lenders. Because these loans are not issued by large corporations, they are usually very flexible, with a lot of customization possible. Any aspect is open to negotiation, including forms of payment, possible equity being issued in the assets, collateral requirement and payment terms.
Connecticut Hard money is fast money
The price that real estate investors pay for hard money is a higher interest rate. The benefit they get in return, besides flexibility, is speed. In some of the nation’s hottest real estate markets, the average time that a property takes to sell is measured in days. In these markets, cash is king. And when it comes to speed, hard money is as good as hard cash.
Sellers are generally not interested in dealing with mortgage-dependent buyers when cash buyers are available. Mortgages lenders can take up to three months to approve applicants, and these processes frequently result in the application being denied. This is too risky for buyers in markets where having a property tied up in a pending sale for three months could cost them tens of thousands in lost offers.
If you have a hard money lender on your side, you’re in a much powerful position. In many cases, hard money lenders are willing to issue loans the same day to established borrowers. This kind of speed allows hard money borrowers to guarantee closings for property sellers.
Connecticut Hard money drawbacks
While hard money loans can have enormous benefits, they are not a perfect fit for everyone. One of the issues with Connecticut hard money loans is that they often have much higher interest rates. For cost-conscious investors who are trying to minimize expenses, this usually isn’t a problem as most will flip their properties within a few months.However, if you intend on holding your property for a longer period of time then a hard money loan can be costly. At the end of the day it depends on your business plan. If the numbers work, then take the hard money loan. Just be aware that the longer you borrow the money, the longer the period of time for which you’re paying a high interest rate. Often, it’s advantageous to use this type of funding as a short term bridge, and to later refinance at lower interest rate.
What Connecticut hard money lenders are looking for
Any hard money lender is looking for the same thing: proof that the project will succeed. Hard money lenders lend against an asset, such as the property itself. This means that they are first and foremost, concerned about the loan to value ratio – meaning what is the value of the property and how much equity is in the property. After this, the Connecticut hard money lender is looking at the project itself. Lenders care immensely about the success of the project. For a lender, giving a loan and then having to foreclose later – due to the borrower defaulting – is a nightmare. No lender wants that. As a result, if you’re approaching a lender for a hard money loan you should be able to prove the fact the project will succeed.
Regardless of whether you’re doing a fix and flip, or a refinance on existing property, you need to be able to substantiate the fact you’ll be able to repay the hard money loan within the specified term.
Delancey Street can help
If you’re looking for a hard money loan in Connecticut – we can help. Our team of experts has experience handling both residential and commercial projects. We can evaluate your project, give advice, and fund it. Fill out our loan details page today.