What makes a hard money lender different from a traditional lender
The main difference between banks and hard money lenders is the fact hard money lenders are asset centric lenders. They focus on the asset associated with the by the person asking for the loan. In contrast, traditional banks focus on the borrowers credit and liquidity. It is very important to remember hard money loans aren’t good for the long run. The purpose of a hard money loan is to be a bridge loan that which helps you get the real estate you’re attempting to buy. Hard money lenders focus on short term loans that generate a great ROI. If you fail to repay the loan, then the company you borrowed from can take over your property in order to settle his/her loan.
Why shouldn’t you get a hard money loan?
There are many reasons reasons why a hard money loan is a terrible idea. For instance, hard money lenders look for higher interest rates. This is due to the fact lenders think they are taking substantial risks by lending on an investment property – and want to be reimbursed accordingly. High interest rates make hard money loans economically toxic for some types of deals. Moreover, hard money lenders have much shorter terms than traditional lenders – which also makes them unattractive. Institutional lender offer 30 year terms but hard money lenders offer only 1-3 year loan terms.
Hard money lenders can help finance your next loan
Hard money lenders serve a very specific group of people, i.e. real estate investors. Hard money lending is a type of bridge term financing, which is secured by property. Specifically, the people who use hard money loans are typically property investors – typically, people who are being denied a traditional loan due to stringent guidelines.
Hard money lenders exist because they are fast, and provide loans with little to no headaches. Hard money lenders have a smooth application system. They expect collateral and do not look at your credit rating. They focus on your expertise, rather than your credit score. In case you’ve got a bad financial past, it will be much easier to obtain financing with a hard money loan as opposed to a conventional loan that’s granted based on your credit report. Below are situations where hard money lenders fill a void that conventional lenders don’t touch:
Daytona Beach Hard money loans can be used for fix and flip real estate investors
Most traditional lenders won’t give you a loan to get a fix and flip job. If the house is in poor condition, or there’s some other abnormality with the home, then a traditional lender will not give you funding. Additionally, most fix and flip prospective deals”go quickly.” The seller is extremely motivated to sell the property, and will accept the first offer. Conventional lenders take forever, so by the time the loan is approved – you’ve already lost the property since someone paid money for it. For those who have a hard money lender on your side who will close a loan in 5-10 days, you can get the fix and flip property.
Loans from private money lenders are good for people who don’t have great credit
Most conventional lenders look at a borrower’s credit score. They look at your income and investigate past delinquencies. This means that somebody with a credit past will have a difficult time, and in some cases never get approved. If this happens, your only option is to use with a hard money lender. While the interest rates for a private loan are higher than traditional loans – if the deal makes sense, it might make sense to take the money.
Hard money gives you leverage
If you’re a real estate investor, more funding means more deals. By using outside hard money, you can get involved in more simultaneous deals that would otherwise not be possible. Traditional lenders consider your entire debt to income ratio, and won’t give you a loan if they think you owe too much money. In contrast, a hard money lender does not care about your income, nor do they care about your existing debt. The only thing a hard money lender will care about is the value of your property. Hard money loans are great for developers who need funds to get their project started but are not a fantastic fit for conventional lenders. Keep in mind, traditional lenders aren’t interested in taking on extra risks – they legally are not allowed to following the 2008 crash. Hard money loans can close faster than traditional loans from a bank, which allows you to move quicker. Many property sellers will be flexible on their price and willing to cut you some slack – if you can show you have funds available. Many property investors that rely on traditional lenders cannot move fast because of delays because of the cumbersome guidelines traditional lenders have. Speed and unlimited money, is why hard money is good.