Hard money loans, are unlike conventional bank financing. These loans are considered, “privately funded loans,” as the requirements vary from one lender to the next. Hard money lenders are concerned with one thing: the collateral, and equity protection. Rates are higher than conventional loans, but funding times are faster, and loan criteria and repayments terms can be individually tailored. Hard money loans are referred to as a last resort, depending on your exact situation. Experienced investors know that if you want a property – you have to move fast. When you want to buy a property within a few days, a hard money loan is the only way to do it. Traditional loans take time. It’s impossible to get a traditional loan approved in 3-12 days. Most traditional lenders take 1-3 months to approve you loan. Because hard money loans are secured by real estate, they come with different guidelines. For example, credit score doesn’t matter in a hard money loan. The hard money lender only looks at your collateral. Traditional lenders however, will never give a loan based on collateral only. In contrast, hard money lenders will. Traditional lenders care about your credit – whereas hard money lenders do not.
The funds in a hard money loan come from private hard money lenders who are interested in lending their money for interest. Hard money lenders charge a higher than average interest rate – compared to traditional institutions. The source of the funds can come from an individual, or a pool of investors, who invest in your loan. Often, many will pool their money and work with a commercial lending asset manager, or through a broker who facilitates the loan.
As a result, this loan is used mostly by real estate investors who are interested in conducting transactions and need a source of money to leverage. Banks tend to not loan to investors, because banks want to make sure they’ll get paid back. Banks look at things like collateral, personal finances, and your credit score. Hard money lenders will often look at the LTV – loan to value – ratio, when evaluating your deal. Lenders prefer a low LTV – no more than 70-80%.
Hard money lenders are useful when time is off the essence. Hard Money Lenders can help you capitalize on critical opportunities – with fast loans, with no credit/income verification checks. If you can’t get funding through conventional means – then consider speaking to a lender. It’s a great option for short term financing.
Typically, it can take 5-10 days to get funding for a hard money loan. Traditional banks take anywhere from 4-8 weeks. Lenders like Delancey Street can fund faster because our loans are funded directly. That means less paperwork, and less red tape involved in funding the loan. Moreover, you can get a hard money loan even if you have bad credit! Credit is not an issue. You should, however, have a plan on how you will repay the loan. Our funding criteria is based on equity in the property and your payment repayment plan. We make loans to foreign nationals, and entities – who have no credit. Typically, we’ll ask you for an appraisal to help us understand the loan to value ratio.
Borrowers should consider a hard money loan, instead of a traditional lender, when you need quick access. Gaining access to this capital comes at a higher interest rate because the investor wants a higher ROI than investing it into bonds, savings account, etc. Moreover, the investor is aware a traditional lender won’t lend to you – and thus, he/she is taking on additional risk by investing in your project. Only turn to a hard money lender if you REALLY need this money.
While you can go to a traditional lender instead of a hard money lender, in most cases if you’re looking for a hard money loan it’s because you have a questionable financial history. Banks look for collateral, good credit, and cash flow. Moreover banks will make you go through a rigorous application process, and take time to make a decision.
Understanding Hard Money Loan
Life is simpler if you can get a mortgage for your case. Unfortunately, sometimes it’s not that easy. Sometimes you need money ASAP for a real estate purchase. If you don’t qualify for a conventional mortgage, then we can help you. Loans are one of many solutions, available for unconventional borrowers. Are they right for you? If not, what’s a better option? Keep reading, and we’ll educate you on loans, and how to make an informed decision.
These loans are a type of real estate loan. They are based off the value of the collateral(the property itself), rather than your capability to repay the loan. Here are some types of loans:
- Bridge Loans. These are used to allow someone to buy property quickly, with the goal of reselling it, or refinancing it. These allow someone to buy a new property ASAP.
- Fix and Flip Loans. These types of loans allow someone to buy a rehab property, and then fi it up quickly so it can resold later.
- Owner Occupied Loans. These loans allow consumers who don’t qualify for other types of financing to get a property for themselves.
- Construction Loans. These loans allow developers to get started on new construction projects, with the intent of refinancing, or selling it quickly.