We grew up hearing the term “cold hard cash” in reference to good old fashioned cash. Now the term “hard money loan” is frequently used. However, the two have nothing to do with each other. While hard money loans do represent cash, that’s where the similarity ends. Here is an overview of hard money loans, including why they’re used, what they entail and how they differ from conventional loans.
What is a Hard Money Loan?
Hard money loans, often referred to as private money loans, are short-term loans used to buy real estate and secured by real estate. Unlike regular loans that are funded by conventional banks and credit unions, hard money loans are funded by private investors or investment companies. They generally go for a year but can be extended up to five years. During the term of the loan, the borrower usually makes interest-only payments or possibly interest and a little of the principal.
They are very similar to balloon payment loans in that the final lump sum is due at the end of the term. Hard money loans are used most often by real estate investors or house flippers. Because the real estate is the collateral on the hard money loans, they’re approval is based on the value of the real estate being purchased.
Why Are Atlanta Hard Money Loans So Popular?
Real estate developers and house flippers particularly like hard money loans because they’re often able to borrow up to 100 percent of the purchase price of the real estate they’re buying, unlike conventional mortgage lenders who require down payments that can go as high as 20 percent. House flippers often buy homes at auctions so it’s important that they have access to the cash quickly, which is another reason why they’re so popular. There are other reasons why hard money loans are so popular.
• Approval is much quicker than with regular loans at banks.
• Funding is much faster as well. The borrower may have the money in a day or two after applying. This can make the difference of a real estate investor getting or missing out on a good deal.
• Credit scores are not important. Even borrowers with poor credit can get card cash loans because the loan is based on the real estate value as opposed to the borrower’s credit.
• Borrower may have more than one hard money loan at one time. Hard money lenders may approve a couple loans at one time if the real estate value allows it.
• Borrowers may be allowed to cross-collateralize property from one loan to another if there are more than one hard money loans at a time.
Where Are Atlanta Hard Money Loans Available?
Hard money loans can be found in many areas and most major cities. If looking through the yellow pages or searching online doesn’t find you plenty of hard money lenders, you may want to consider contacting real estate agents in your area because they often have contact with these lenders. Mortgage agents and mortgage brokers may also offer information on where you can find lenders who deal with hard money loans.
How Hard Money Loans Differ From Conventional Loans
Hard money loans differ from conventional loans in various ways. Here are just a few ways.
• Hard money loans are funded by private investors as opposed to banks and credit unions.
• Interest rates and lending fees are much higher than regular loans.
• Hard money loans are short term whereas conventional mortgage loans can run from ten years to 30 years.
• Funding for hard money loans may come through in a couple of days whereas conventional mortgage loans can take more than a month to close.
• Because the hard money loans are investor-funded, the borrower may get more flexible loan terms and payments.
• Hard money loans are not approved based on credit, but conventional loans use credit scores as almost their top priority.
What To Do Next
Delancey Street is a nationwide hard money lender. We can provide loans in Atlanta for commercial and residential properties alike. Regardless of the size of the loan, we can provide funding for your next project. We are a service oriented hard money lending firm, who is here to help – and won’t let you down. Real estate investors turn to us when they need a source of reliable and transparent source of hard money. As a service oriented firm, we believe that means offering terms that align with the needs of our clients.
What is a Hard Money Loan
In case a traditional mortgage lender does not work, real estate investors use the other option of a hard money loan. The lender of the hard money uses property as collateral. Here is everything you need to know about hard money loan.
A hard money loan can be termed as an asset-based loan. When applying for a traditional loan, your credit history and income determines the approval. The lenders prefer lending money to people that have an excellent repayment record. However, having a lot of income and a high credit score is not enough for you to get a traditional loan. The process becomes long and frustrating. On the other hand, hard money lenders consider collateral and do not pay attention to credit history.
You need to understand that hard money loans are not issued to everyone. If you are new in the real estate industry and do not have enough capital, applying for a hard money loan is the best option. The reason is that you can have full ownership of the house before you sell it.
How does Hard Money Loan Operate?
In most cases, hard money loans provide a contract that lasts for about 6 to 24 months only. All real estate agents prefer taking short term loans because the interest rates accrued can be less. The main advantage of choosing a hard money loan is the speed of closing.
Generally, hard money loans give real estate investors an excellent chance to buy more properties and sell with less capital. As a result, they end up ripping great returns on their investment.
Difference between a Hard Money loan and Traditional Loan
Some things make hard money loans different from traditional loans. Some of the differences between the two loans include:
1. Speed. Unlike traditional lenders that take a lot of time checking your financial position, hard money lenders do not look at your financial status. As a result, the hard loan lenders can move fast through the loan closing process. If the property in question does not have any complications and the borrower is ready, hard money lenders can close in a few days. The moment many deals are up for discussion, speed can be an issue.
2. Repayment schedules that can be adjusted. Normally, traditional lenders lack flexibility when it comes to underwriting. Hard money lenders can make changes to the payment schedule because they are not regulated by strict guidelines like banks.
3. Approval. Based on the value of your property, you can get a hard money loan. As much as hard money lenders go through your credit history and experience, their programs are flexible enough to accommodate all people who have an average borrower profile.
Also known as gap financing, it is a short-term loan that enables the borrower to move from one step to another by using the equity of their property as leverage. Bridge loans work best for real estate investors that have multiple projects in progress. Such investors normally wait to sell one property so that they can begin on the next project. Therefore, bridge loans help such investors to continue with their projects instead of having to wait.
Hard money construction loans are used to fund commercial and residential properties. A construction loan normally runs for six months to 2 years, and you only need to pay the interest.
A real estate acquisition loan is a loan that is granted to purchase a property. As long as the loan is used to buy a property, it does not matter whether the property is for resale or condominium conversion.
Properties that Hard Money Lenders Lend On
A borrower can be granted a hard money loan by using any property- residential, commercial or industrial. Remember that Walnut Street Finance does not provide loans for residential properties occupied by the owners. The property must be in either the fix or flip or fix and hold scenario to be viable for a loan.
Process of getting a Hard Money Loan
The first step is having the property that you intend to use for your real estate project. The moment you have identified a potential property, get the information and apply. Ensure that you have proof of payment, financial statements, and all information about the property. The next step is underwriting. If your application is approved, the closing process begins.