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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, boston 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.
While hard money loan terms are not as attractive as bank loans, hard money is a valuable financial resource for investors to use.
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 Boston hard money loan?
There’s many reasons why a hard money loan is a bad idea. For example, hard money 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 boston hard money loans unattractive for some types of deals. In addition, hard money lenders have shorter terms than traditional lenders – which also makes them unattractive. Institutional lender offer 30 year terms but hard money lenders offer only 1-3 year terms.
Why does the Boston hard money 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 Boston hard money 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 hard money loans
Hard money 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.
Investors know that every financial move they make will either benefit or harm them in the future. This is especially true in the real estate industry, as the market is always going up or down. With little room for mistakes, how does one know what financing options are the best?
Choosing Hard Money Loans
Real estate investors in Boston know they have options when it comes to finding funding for their ventures. While every option has the potential of providing them with the cash they need, some financing solutions are better than others. Read on to explore the differences between hard money loans and comparable financing methods.
Hard Money Loan
The hard money loan is often the financing option of choice for real estate investors. Whether they need to purchase a property, fund a fix-and-flip, or something more unconventional, hard money lenders are able to provide them with financing quickly to help them meet their goals.
Like other loans, the hard money loan comes with interest, but hard loans’ rates are generally quite high. These rates are ultimately balanced out by the length of the loan, as the short terms ensure that the interest is only charged during that time.
Once investors are approved for a hard money loan, they will likely see the money in a few weeks or even within that same week that they applied. The easier application process, short terms, flexible requirements, and quick cash make hard loans ideal for the prudent real estate investor.
Home Equity Loan
Home equity loans are taken out against an individual’s home equity (the difference in what the home is worth and what the individual still owes on the home). To qualify for this loan, you will need to own property—either your home or another property that you are investing in. If there is enough equity in your home, this money can be used as a down payment for another property or to purchase the property outright.
HELOC or Home Equity Line of Credit
The HELOC is like the home equity loan, yet it differs in that the borrower will be able to access the money through their line of credit instead of receiving it all at once. You will only qualify for this if there is enough equity built up with your other real estate properties. This option is preferable for investors that need money for their down payment or need to fund the purchase of their second property.
Cash-out refinancing is similar to a typical mortgage refinance. Instead of refinancing the amount left on a mortgage, the cash-out refinance allows an investor to take another, larger loan out so the difference can be paid out in cash. Essentially, this option will “reset your mortgage clock” and you’ll be able to use the extra equity in the form of a loan.
Line of Credit
Business lines of credit can be used for making real estate purchases. Investors will be able to withdraw money accordingly when they have to fund a real estate purchase. Though this is often a preferable solution for many real estate investors, it isn’t a hassle-free process. Investors must prove that they have good credit, are financially responsible, and have a proven track record with their investments.
Bridge loans are quite similar to the hard money version. A bridge loan allows an investor to access cash if they are between property purchases. For example, if an investor is awaiting the sale of one property while trying to purchase another, a bank can provide a bridge loan to help them purchase the new property.
You have options as an investor when deciding which financing solution will be most appropriate. Keep this guide in mind as you continue to research your options with hard money loans.