Baltimore Hard Money Lenders
When most people decide to buy an investment property, they are usually forced to finance at least part of the purchase. Financing for investment properties is very frequently done through a mortgage, which allows real estate investor to get into a nice property without having to save for 10 or 20 years in order to do so.
In some cases, an investment property may require extensive repairs to make it livable, or there may be some other serious problem, such as a title defect or lien. These situations may be viewed by traditional lenders as too risky. Additionally, the buyer themselves might not have a strong enough credit score, income, or cash reserves, to meet the strict lending standards of traditional lenders.
When a mortgage is not a viable option, hard money loans may be the answer certain borrowers are looking for.
What is hard money?
Unlike traditional mortgages, which are almost always financed through huge financial organizations with strict lending standards, hard money loans are usually issued through individual investors or small groups of investors. Their lending standards are very flexible. This means that hard money loans can be fantastic tools for sophisticated real estate investors who are looking for ways to make complex deals happen.
Another benefit of hard money loans is that they are almost always fully backed by real estate. Typical loan-to-value ratios for hard money loans usually hover around the 50 percent mark. This is lower than what traditional lenders cover (80-100%). This is due to the fact the hard money lender doesn’t want to take all the risk of the project on himself/herself. In some cases, you might find a hard money lender whose willing to offer a 60-70% LTV loan. It can vary. The great thing is every loan can be negotiated. Hard money lenders focus on the outcome of the project. If you can prove to them the project will succeed, and offer the appropriate collateral – they will fund your hard money loan.
If you fail to repay the loan, the hard money lender can recoup his principle + interest by taking possession of your collateral and selling it. While this does raise risk for the borrower, all else being equal, it also means that borrowers don’t have to go through the due diligence process normally associated with taking out a mortgage, which can drag on for months. Many deals can die because traditional lenders take too long to give a decision. It’s common for traditional lenders to take 2-3 months before offering an approval or denial. Most sellers will refuse to wait this long. When you work with a Baltimore hard money lender, it’s common to get approval in as little as 4-6 days.
Baltimore hard money loans can give real estate investors a big edge
The fact that hard money lenders normally have minimal, or no due diligence requirements means that hard money loans can be underwritten incredibly fast. With borrowers able to get cash in hand within a few days, this gives real estate investors greater bargaining power when presenting an offer to a property owner.
In markets where the average selling time is less than a month, many sellers hesitate to get involved with anyone who doesn’t have cash in hand. That’s because the loan approval process can take up to three months. At the end of this long waiting period, there is always the chance that the sale will fall through when the applicant is denied. This forces the seller to start the whole process over; except now, the property has been apparently sitting on the market for months, adversely affecting its perception among buyers.
Hard money borrowers often have the ability to close deals as fast as cash buyers. The ability to guarantee a quick closing gives them a big leg up on the competition in strong markets, allowing savvy investors to scoop up the best deals as they become available.
What hard money lenders look for
Every hard money lender cares about one thing: when he/she will get repaid. If you are approaching a hard money lender, you should be prepared to answer how/when you’ll repay the loan. That means having a business plan in hand that addresses what you intend on doing with the property, and how you plan on exiting the property. For example, if you are fixing and flipping a property – have a business plan drafted that explains how much you need to buy the property, how much you need to rehab it, and how soon you’ll sell it.
If you plan on buying and holding, you’ll need to be able to demonstrate to the Baltimore hard money lender that you will be able to repay the loan. Typically, in “buy and hold,” situations – the real estate investor uses the hard money as a bridge loan, and then finds a traditional lender to refinance the property. Bottom line, you need a business plan to assure the lender you’ll be able to repay the loan.
Is an appraisal needed?
Appraisals are usually required for most loans. It protects everyone involved in the transaction, including both the borrower and lender. It’s one of the last steps in the application and underwriting process. In some cases we may not ask for them if we feel comfortable with the assessment and condition of the property. We usually only ask for an appraisal after the borrower is already approved for their loan, and the deal terms have been accepted. We use the appraisal to make sure the property is in the condition it was represented as.
What documents do I need for a HM loan
Typical documents you’ll need are a Note, and a Deed of Trust. Depending on the value of the asset, the HM lender might ask for documentation such as a personal guarantee from the borrower, past tax returns, proof of income, and assurances that the borrower has access to cash to perform whatever renovation the borrower is intending on doing.
What is the point of the Letter of Intent
The LOI for a HM loan is to provide a quick way of ensuring both the borrower and HM lender are in agreement about the terms and conditions. This isn’t legally binding, but it helps create a common set of guidelines that both parties generally adhere and agree to. It prevents miscommunication, or misunderstanding, between the two parties.
What differentiates HM lenders from bank lenders?
The main difference between banks and HM lenders is the fact HM lenders are asset baed lenders. They focus on the collateral associated with the loan. In contrast, traditional banks focus on credit and cash flow. It’s super important to remember HM loans are not good for the long term. The purpose of a HM loan is to be a short term loan that gets you the property you’re trying to purchase. HM lenders focus on short term loans that reap high profits. If you fail to repay the loan, a HM lender can foreclose on your property in order to repay his/her loan.
What credit score do I need to qualify for a HM loan?
When it comes to HM loans / private money loans, we don’t look at your credit score. Our primary focus is the potential opportunity in question. We focus exclusively on the LTV, and other facts pertinent to the deal itself. We are more concerned about the viability of the project, than your past history. It’s that simple.
With Interest Rates So Low, Why Use HM?
A lot of people wonder why they should use a HM loan when interest rates are so low. Here’s the answer: if you’re looking to buy a real estate investment property – it’s super hard to use traditional bank financing. The crash of 2008 occurred in part due to a lot of money being used for real estate investment. When the crash occurred, a lot of banks were stuck holding this “bad debt.” Banks have so much business from traditional lending, such as home loans, etc, they don’t want the risk from commercial business. As a result, even though interest rate are low – it doesn’t REALLY help real estate investors who need funding for their next purchase. In addition, even if traditional lenders decide to help you – it takes too long. Most real estate investors cant wait 60-90 days for a deal to close. Most deals go to investors who can close in 10-12 days. As a result, many real estate investors turn to HM lenders who can close fast. In todays market, you need to be nimble and quick. Opportunities are few. You need to be able to capitalize on them ASAP, and that means you need a partner who can assess your potential opportunity quickly, and fund it.