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Chattanooga-Tennessee Hard Money Loans
Hard money loans are short-term loans that use real estate property for collateral. In some instances, a hard money loan is necessary because the person is unable to obtain a traditional mortgage loan. There are other times when real estate investors need a loan product that’s fast and easy. If you’re thinking about securing a hard money loan, you’ll want to make an informed decision. Keep reading to learn more about hard money loans.
About Hard Money Loans
Unlike traditional mortgage loans, hard money loans are primarily based on the value of your property as collateral. In other words, while your ability to repay the loan is considered, it isn’t necessarily the determining factor. When it comes to hard money loans, the collateral is the star of the show. Hard money lenders are individual investors and investment firms that look at loan applications differently than traditional mortgage lenders that follow strict criteria. Hard money lenders are more likely to overlook bad credit, foreclosures and bankruptcies.
There are different reasons why investors need real estate loans and there are products to accommodate various needs, such as the construction loan, bridge loan, fix-and-flip loan and owner-occupied loan. Incidentally, only about 10 percent of hard money lenders offer owner-occupied loans in some states because there are many regulations associated with consumer loan products.
An interesting hard money loan product that works for different situations is the bridge loan that enables you to purchase a property fast and then either refinance or resell it. You can also use a bridge loan to buy a property now, then get a cash down payment by selling a property already in your portfolio. Fix-and-flip loans are exactly as you might expect; you buy, fix and flip a property, then pay off the loan. Real estate developers use construction loans as a way to get started on a new construction project, then sell it fast or refinance.
A Closer Look at Hard Money Loans
Many real estate investors will tell you that hard money loans are appealing because they are fast and easy. In fact, the application process is simplified and financing can take less than a week, depending on the lender. Typically, you will need a cash down payment for a hard money loan that’s based on the Loan-To-Value (LTV) ratio or After-Repair-Value (ARV) ratio.
The term for hard money loans is one to several years. There’s a possibility that the monthly payments will be interest only instead of principal and interest. In fact, you could potentially have a loan that doesn’t require any payments until the loan matures. You would then be required to make a balloon payment that covers everything owed, including the principal, all remaining interest and any fees.
Advantages and Disadvantages
There’s a lot to consider when thinking about getting a hard money loan. One of the first questions to ask yourself is whether you can get a cheaper loan. If that’s not the case, then it’s worth looking at the advantages and disadvantages during your assessment of hard money loans. The good news about hard money loans is they provide the money that you need – fast! The relaxed requirements are also something to think about if you have low credit scores and income that’s hard to verify. Since the terms are flexible, a lender can often work out a custom solution that fits your situation.
For the sake of due diligence, you can’t ignore the fact that hard money loans have high interest rates, plenty of fees and short terms. You also have to be careful about the lender that you choose because there is limited government oversight. Then there’s the possibility of having a hard time refinancing because of traditional lending requirements. Nevertheless, many real estate investors are able to get past their concerns because a hard money loan offers a solution to their problem and enables continued investing.