If you need money to purchase real estate and you are unable to qualify for a conventional mortgage, there are alternatives. First, you should know that you’re not alone. It can be difficult for a lot of people to qualify for a bank loan to purchase property.
Hard money loans have become a solution to a problem that many real estate investors face. The information below about hard money loans is provided so that you can get a good understanding of this loan product.
About Hard Money Loans
For starters, hard money loans are real estate loans and the lenders are private companies and individuals. Hard money lenders make funding decisions based on the merits of each borrower, as opposed to strict, one-size-fits-all lending requirements. For instance, while conventional loans primarily evaluate your ability to pay, hard money lenders assess the value of your collateral.
There are different kinds of hard money loans. For instance, a bridge loan will let you buy a property fast, then refinance or resell it. You can also use this loan to buy a new property before getting the cash down payment from the sale of a property you already own. Fix-and-flip loans are just as they sound; you buy and fix up a property to sell immediately, and pay the loan off. Construction loans are for new construction projects when the property will be sold or refinanced.
There’s also the owner-occupied loan for consumers who want to purchase a property that they occupy, but are unable to qualify for other types of loans. However, a lot of hard money lenders do not provide these loans because they can become complicated due to regulations. For instance, owner-occupied consumer loans require compliance with the Dodd–Frank Wall Street Reform and Consumer Protection Act. There are also licensing requirements for this type of loan. These regulations make an otherwise easy hard money loan process far more complicated.
How Hard Money Loans Work
The application process for hard money loans can often be completed within a week. Usually, you will need cash for the loan, and the amount will depend on the property’s Loan-To-Value (LTV) ratio or After-Repair-Value (ARV) ratio. Once funded, the loan period is usually about 12 months to a couple of years. A beneficial aspect of hard money loans is that you will not have to make monthly principal and interest payments. Instead, you will make interest only payments. At the end of the term, you will pay the entire loan off through a balloon payment that covers the principal, the rest of the interest and all fees.
How Hard Money Loans Are Different
There are stark differences between hard money loans and traditional loans. Although they sometimes have similar underwriting practices and they both offer mortgage loans, just about every other aspect of these products are different. The lending process for hard money loans is fast, the terms are flexible and the requirements are less stringent. These are all benefits that could outweigh other aspects of hard money loans that are viewed less favorably.
What’s often considered a downside of hard money loans is that interest rates are high, the loan period is short, there are a lot of fees, there’s a lack of government oversight and you could possibly have a difficult time refinancing if you are still in the “seasoning” period of the loan. Despite these considerations, hard money loans are still a useful tool for people who cannot qualify for other types of loans.
Many real estate investors who weigh the pros and cons, choose a hard money loan because it makes sense from a strategic standpoint. However, it might be a different story if it’s a buyer’s market or other options are available.
If you’re a real estate investor we have exciting new financing options for you! Our hard money loans make it possible for you to take advantage of many more opportunities. Even if you’ve been turned down elsewhere, we probably have a loan program for you. You’ll enjoy fast approval and minimum documentation requirements with many loans funded within the same week.
What is a Hard Money Loan and How Can it Help?
A hard money loan is a non-traditional mortgage used to secure real estate for the purpose of reselling it for a profit. While there are many different types of hard money loans used for many different purposes, most borrowers utilize them for rehabilitation or securing a property with no money down.
A hard money loan focuses on the quality and the ability for the property to make a profit from resale. Unlike a traditional loan, much less emphasis is placed on the borrower’s ability to repay the loan. This makes the ability to borrow with poor credit, limited assets, and self-employment, possible.
A hard money loan is also considered to be a temporary loan. The repayment term is nearly always less than five years with the average loan being paid off within one year. These loans also use interest only payments, adjustable rates, and balloon payments to reduce the monthly cost to the borrower while they “fix and flip” the property. These loans are not intended to secure a primary residence or any sort of scenario where the borrower retains the property for an extended period.
How are Hard Money Loans Different than a Bank or Mortgage Company Loan?
Hard money loans provide much more flexibility to the borrower in terms of underwriting and approval. Minor credit issues are typically not an issue. With a traditional mortgage loan, the borrower’s ability to satisfy the obligation is the primary focus. With a hard money loan, the potential for turning a profit is the main concern. Since many investors have situations that may limit their access to immediate resources, a hard money loan takes these matters into consideration. Conventional mortgage loans typically offer lower interest rates; however, the processing times are much longer, and the chances of denial are much greater. This is simply not a practical scenario for many investors. Hard money loans alleviate these concerns and provide borrowers with access to new opportunities.
What Documentation is Required for a Hard Money Loan?
A hard money loans places heavy emphasis on the property appraisal. Any documentation that would support the costs to rehabilitate the property are also helpful. A property inspection is helpful to find any early warnings of potential problems that could surface along the way. Comparable sales in the area help our underwriters to determine what the value of the home is after the repairs are made. At the time of application, a property should be selected, and the address should be made available.
How Can I Obtain a Hard Money Loan Pre-approval?
To get started, you’ll want to fill out our convenient online loan inquiry form. We’ll have one of our professional and dedicated loan professionals reach out to you. They’ll go over your options to determine the type of loan that would work best for your scenario. After a pre-approval is issued, you’ll want to submit the requested documentation as quickly as possible. After the loan is processed and underwritten, you’ll be scheduled for settlement. You’ll review the loan disclosures and ask any questions that you may have. You’ll quickly see why our clients trust us with all their financing needs. Get in touch with us to see how we can help you, today!