Cary-North Carolina Hard Money Loans
Traditional mortgage lending can be a difficult process. Not only is it complicated, but there’s a good chance that you won’t even get approved. It’s an issue that real estate investors deal with every day. Hard money loans offer an opportunity to bypass the challenges associated with traditional mortgages because hard money lenders follow a different set of rules.
The information below provides and overview of hard money loans with insights that can help you decide if it’s a good option for you.
About Hard Money Loans
A hard money loan is for the purpose of purchasing real estate and approval is based on the value of your property, which serves as collateral. Hard money lenders are typically private investors or firms that assess loan applications based on different criteria than banks. They are also more likely to provide a custom loan product based on your specific needs. In other words, instead of being rigid, you might be able to speak with someone about your situation.
There are different kinds of hard money loans. Bridge loans are for buying a property fast with the intention of reselling or refinancing it. This loan type also lets you buy a property now, prior to getting the cash for a down payment from selling a property you already own. Then there’s the fix-and-flip loan for buying and rehabbing a property to resell, after which you will pay off the loan. Construction loans are for new construction projects that allow real estate developers to start the project and either refinance or sell the property quickly.
There are some hard money lenders who offer owner-occupied loans, but the majority choose not to provide this product because of the additional regulations, such as Dodd-Frank. There are also certain licensing requirements for owner-occupied consumer loans that hard money lenders would rather avoid. Keep in mind that each hard money lender has different criteria and they make decision based on each individual situation.
How Hard Money Loans Work
One of the perks of a hard money loan is the fast application process and the quick financing, which is the exact opposite of traditional bank lending. Typically, borrowers are required to have a cash down payment that’s determined based on the Loan-To-Value (LTV) or After-Repair-Value (ARV) ratio of your property. It depends on the lender requirements, which can vary significantly.
The term for hard money loans is usually 12 months to several years. Instead of making monthly principal and interest payments, hard money loans often only require monthly interest payments. There are even some loans that don’t require any payments at all until the loan term ends, at which point you make one payment. That final payment would include the entire principal, all interest and any fees that have been added.
Is a Hard Money Loan a Good Option?
Whether you should pursue a hard money loan really depends on your situation. These loans have short terms, high interest rates and high fees. There are also other issues, such as the possibility of having a hard time refinancing because of traditional mortgage requirements. Then there’s the fact that hard money loans have little government oversight. Incidentally, these loans should be avoided if you are in a buyer’s market or you have another option that’s more attractive.
Obviously there’s a reason why hard money loans are in the marketplace. Plenty of real estate investors appreciate the access to quick money, flexible terms and lenient requirements. If you are unable to secure another lending option, then a hard money loan might be the right solution. Every person’s situation is different and an informed decision is probably a good decision.