Boston Hard Money Lenders
Are you having trouble finding a bank that is willing to approve your real estate loan request? Banks are in the business of making conservative loans. They only approve financing requests that meet their very narrow lending parameters. Unfortunately, these guidelines don’t cover all real estate transactions. In order to profit from an amazing opportunity that you have uncovered, you need hard money. Hard money is a great alternative to traditional lending.
Important Facts About Boston Hard Money Loans
Before you spend time contacting multiple Boston hard money lenders to request a quote, you need to improve your understanding of hard money. While banks approve real estate loans that fit within their narrow lending guidelines, hard money lenders approve real estate loans that fall outside that box. There are many types of scenarios that could be profitable to you and that banks will not finance. Scenarios like this are where hard money loans can be instrumental. Hard money loans are typically issued based on the value of the property, rather than the credit worthiness of the borrower, or his/her finances. For example, you generally will not see a minimum credit score requirement with hard money lenders. Hard money is a type of private loan. Hard money lenders focus on the individual borrower, whereas traditional lenders focus on your credit score, your income, and your savings. As a result, traditional lenders won’t approve loans for investment properties, whereas hard money lenders will.
What To Expect From a Boston Hard Money Loan
You can expect great things from a hard money loan, but there are some potential drawbacks that you should be aware of as well. Hard money loans have a rapid turnaround time, and you could potentially close within a few days or less. In addition, you can expect flexibility with regards to the types of projects that your hard money lender will review. Loan terms are typically dictated on a case by case basis. While some documentation is required by a hard money lender, you can typically expect the process to be easier and for less documentation to be required in comparison to a bank loan. In addition, the loan terms are substantially different than permanent loans from banks. For example, rather than having a 30-year fully-amortized loan, you may have an 18-month interest-only loan. Rather than having an 80 percent loan-to-value, you may only have a 60 percent loan-to-value. Rather than having a six percent interest rate, you may have a 16 percent interest rate. These are only examples. Each loan is different.
Projects That Are Great for Hard Money
While bank loans are usually used as a source of long-term financing, hard money loans are ideal for short-term investments. For example, residential investors can use hard money to flip houses. Commercial real estate investors can use them for more renovation projects, to improve cash flow, or for other purposes. In addition to short-term investing, hard money loans can also be used as a source of temporary financing. For example, you may be in the midst of a bank loan, but might need another month or two before your loan will close. You can use hard money for immediate financing needs until the bank loan is approved.
What We Look For
Delancey Street uses artificial intelligence to better evaluate hard money requests. Our goal is to look at every single loan, and try to fund it. We look at every loan and try to understand whether the project will succeed or not. We look at obvious metrics, like LTV, ARV, etc. But the most important thing to us, is what the real estate investor plans on doing. If it’s a fix and flip, tell us the cost of construction, how long it will taken, and how much you will sell the property for. The most important thing to us is what you’re business plan is, how you intend on repaying the loan, and how much experience you have doing these types of investments.
Bottom line, while we look at your loan – we look at you – the entrepreneur, and do our best to help you succeed. We can lend you money as soon as 24 hours.
Why shouldn’t you get a HM loan?
There’s many reasons why a HM loan is a bad idea. For example, HM lenders often charge higher interest rates. This is due to the fact lenders think they are taking huge risks by lending on an investment property – and want to be compensated accordingly. High interest rates make HM loans unattractive for some types of deals. In addition, HM lenders have shorter terms than traditional lenders – which also makes them unattractive. Institutional lender offer 30 year terms but HM lenders offer only 1-3 year terms.
Why does the HM lender need title insurance
HM lenders want title insurance because it protects both the borrower and the lender. In the event there’s any issues with the property, and there are competing claims of ownership for the property – then title insurance helps cover the losses incurred by the party purchasing the property. In some instances where the property is “risky,” due to competing claims, or risks of litigation, Delancey Street may ask for title insurance.
When does it make sense for a real estate developer to use a HM loan?
In our experience, even developers with strong finances and access to bank credit choose to use HM loans. There are many situations where time is of the essence, and a bank will just take too long. For example, if you need immediate funding for a deadline – then a HM loan makes more sense. If you have an excellent investment opportunity but don’t have the financial strength to get a bank loan – then a HM loan makes sense. If you have a bank line of credit, but need a larger loan than is allowed under the existing line of credit – then a HM loan makes sense.
When to avoid HM loans
HM loans open doors, and can close doors too. Here are situations where you should avoid these types of loans.
- You are in a buyers market. If you want to sell the home after fixing it up, and homes aren’t selling well – then you might fail. If your HM loan is due before you sell it, then you’ll need to refinance, or be foreclosed upon by the HM lender.
- You don’t have a refinancing plan in place. Unless you sell your home before the loan comes due, you will have to refinance the HM loan. You should have a plan in place to refinance the loan, and know what the requirements are to conduct a refinance of the property.
- Other options are available. HM loans are expensive. Make sure you look into other options always.
What’s a term sheet
It’s a conditional commitment letter, or a good faith letter. It’s a written expression of interest by a HM lender in making a loan, and an estimate of the eventual terms of the agreement. It is not a commitment letter. It is not legally binding. It is an encouraging statement, and means you’re in the right direction. If a borrower gets a term sheet, it means the HM lender is willing to work with the borrower pursuant to the terms mentioned in the term sheet.
What happens if there’s a mechanic’s lien on the property
Mechanics liens are used by construction companies when a property owner fails to pay a contractor for services, or when the general contractor fails to pay sub-contractors. Title insurance doesn’t provide protection against this. HM lenders will protect themselves against possible mechanics liens by making sure a loan includes the renovation budget, and that all of the sub-contractors and general contractors sign releases before disbursing funds.