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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.
A New Construction Loan in North Carolina
There comes a time when many business owners must choose how to expand their business. Are you renting an office space but want your own building? You may want to expand your current office space to meet the demands of your growing business. A commercial construction loan could help business owners achieve their expansion goals.
What is a Commercial Construction Loan?
A commercial construction loan is used by business owners to cover the financial costs that are associated with renovating or constructing a building. The funds of a commercial construction loan can be used to cover the cost of the land for the commercial building, pay for material that will be used to construct the building, or renovate existing properties.
Why Should You Take Out a Commercial Construction Loan?
While a commercial mortgage is used for business owners who want to purchase existing commercial properties, commercial construction loans are used for those who plan to construct a new building or renovate an existing commercial office space.
New commercial renovation and construction can be expensive and cost thousands to millions of dollars. There aren’t many growing businesses that have the funds to pay for new construction. A commercial loan is beneficial because it releases funds throughout the construction and/or renovation process. You can use the funds to pay for land development, labor, materials, and more.
Commercial construction loans in North Carolina are not like other loans. Typically, loan terms are made to give the borrower the full amount of funds in one sum. The borrower is then responsible for paying back the loan over a certain period of time. Most commercial mortgages have a monthly payment schedule that is at least 10 years or longer.
Those who are taking out a commercial construction loan will work with their lender to create a draw schedule. A set amount of funds will be released once a new milestone has been completed. The first draw may be when the foundation of a new building is poured, and the second draw could be released after the building has been framed. Most lenders will have an inspector confirm when a new milestone has been completed.
A commercial construction is also different from traditional loans because you are only responsible for paying interest on the funds that have been disbursed. For example, if you took out a new commercial construction loan for $500,000, but you have only received $200,000 of the total amount, then you would only pay interest on $200,000.
Many commercial construction loans are set up so that the business owner only pays on the interest until the full amount has been issued. At the end of the construction project, borrowers can pay off the principle. However, if a borrower doesn’t want to pay off the total in one lump sum, he or she can apply for a commercial mortgage. Commercial mortgages use the property as collateral. The borrower will use the commercial mortgage to pay for the balance of the commercial construction loan. With a commercial mortgage, the borrower can take advantage of a locked monthly payment that is more affordable than paying one large sum.
Tips on Applying for a New Commercial Construction Loan
If you are applying for a new commercial construction loan in North Carolina, you will probably need to show the lender a business plan that outlines each step of the construction project. It can also be helpful to have an estimate of the project cost, which includes the cost of materials, labor, and other expenses.