Cambridge-Massachusetts Hard Money Loans
Often, when people think of a real estate loan, they think of the typical 15-year or 30-year home mortgage. However, there are many circumstances in the real estate market where a standard mortgage is not feasible. If a buyer needs money as soon as possible in order to make a real estate purchase, a hard money loan could be the answer.
Hard money loans are a lesser-known category of real estate loans. Instead of analyzing a borrower’s ability to pay, the lender of a hard money loan reviews the value of the loan collateral, which is the property, itself. There are several types of hard money loans in the market today.
1. Fix-and-flip loan. This loan is intended for someone who wants to buy a property, rehab it, and then put it back on the market for a quick sale. The loan is then paid off.
2. Bridge loan. This style of loan allows someone to quickly buy a property and then resell it. The loan could also be used as a down payment on a new property while the borrower waits for the sale of a current property.
3. Construction loan. If a real estate developer wants to begin a new construction project with the aim of quickly refinancing or selling it, a construction loan will provide the financing to do so.
4. Owner-occupied loan. These loans are used by borrowers that may not qualify for other financing, but intend to live in the property they purchase as their primary residence.
A distinguishing characteristic of hard money loans is that they are short-term real estate loans, usually with a maximum of three years. During the life of the loan, the borrower may only be required to pay the interest amount. At the end of the loan term a balloon payment is made, which covers the entire principal of the loan.
Despite the fact that hard money loans and traditional bank loans are both used to finance real estate purchases, they have significant differences. One main difference is that hard money loans are provided by private individuals or organizations, and not by typical banks. The extremely short repayment period of hard money loans comes with high interest rates, compared to traditional bank loans. However, while bank loans have a lengthy application process, hard money loans have an easier application and approval process. Furthermore, hard money lenders are concerned with the value of the real estate collateral, whereas conventional banks focus on credit scores and income.
When considering a hard money loan, a borrower should review both the positive and negative aspects of this type of loan. On the one hand, a hard money loan offers the benefits of quick access to funds, more lenient requirements than traditional loans, and customized terms. On the other hand, hard money loans do have relatively high interest rates and can have high fees. Another point to consider is that hard money loans have little government oversight, so borrowers must do their research and take caution when choosing lenders.
Once a borrower decides to secure lending through a hard money loan, there should be a variety of options available because of the non-traditional and varying nature of the lenders. The best way to find a hard money lender is to ask real estate investors in the local area. The reputation and quality level of lenders will be known in the real estate community. After narrowing down the list of lenders, the borrower should still do further research on the processes and reliability of the lending individual or company. Because hard money lending is not tightly regulated, it is important to put in the time and effort to find the best lenders.