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Bridgeport-Connecticut Hard Money Loans
When real estate investors pursue a traditional mortgage loan and the process falls apart, they often look to hard money loans for a solution. It’s not uncommon for people with solid credit and a great income to have issues with a traditional mortgage lender – it’s just a fact of life. Hard money loans are an alternative that many real estate investors have come to rely on when they need money fast and don’t want the hassle of a traditional mortgage loan. Keep reading to learn more about hard money loans.
About Hard Money Loans
Hard money loans are real estate loans that are based on the value of your collateral, which is your property. Hard money lenders are investors who actually assess each individual application on its own merit, unlike traditional mortgage companies that tend to focus mostly on your credit scores and income as a way to determine if you can and will repay the loan. The methods used are distinctly different.
There are various kinds of hard money loans, such as fix-and-flip loans that are for the purpose of buying a property that you will fix up, then sell immediately, at which point you’ll repay the loan. Construction loans are for the real estate developer that wants to start a new construction project and intends to either sell it right away or refinance. Bridge loans let you buy a property fast and either refinance or resell it. You can also use a bridge loan to buy a new property before getting money from selling a property that you presently own.
Unlike the other types of hard money loans mentioned, the owner-occupied loan is a consumer loan that’s not as common as the others because hard money lenders want to avoid the many complex regulations associated with consumer loans. But, there’s still a small percentage of hard money lenders who provide owner-occupied consumer loans.
How Hard Money Loans Work
When most people think about mortgage lending, they assume the process will be lengthy, because that’s usually the case. This is not so with hard money lending. In fact, the application process is quite streamlined and can take less than a week, which is very appealing to real estate investors. Typically, you will need a cash down payment for a hard money loan that’s based on the Loan-To-Value (LTV) or After-Repair-Value (ARV) ratio. However, it depends on the hard money lender since they tend to have drastically different requirements.
The payment of hard money loans is also different than traditional loans. Instead of making regular principal and interest payments each month, you might only be required to make interest payments. In fact, there’s a chance that you won’t have to make any payments at all until the loan matures and the balloon payment is due. The balloon payment consists of the principal, all remaining interest and any fees. Just keep in mind that each lender has different criteria.
Is a Hard Money Loan Right for You?
When trying to decide if a hard money loan is right for you, the first question should be whether there is a cheaper solution because hard money loans have high interest rates. In addition, they have very short terms, sometimes there are a lot of fees and there might be an early-payment penalty. However, if you are unable to obtain a traditional mortgage loan, then a hard money loan might be a good option. After all, it can provide you with fast money, the requirements are often relaxed and the terms are flexible.
From an strategic standpoint, many investors view hard money loans as a way to access money to obtain a great real estate investment that would otherwise be lost. It can literally mean the difference between success and failure as a real estate investor.