What makes a hard money lender different from a traditional lender
The critical difference between traditional lenders and hard money lenders is the fact hard money lenders are asset centric lenders. They focus on the asset associated with the hard money loan. But, traditional lenders are fixated on credit and how much cash the borrower has. It is critical to remember hard money loans are not great for the long run. The objective of a hard money loan is to be a short term loan that gets you the asset you’re trying to purchase. Hard money lenders focus on 6-24 month termloans that generate high profits. If you are unable to pay the hard money lender back, then the hard money lender can repossess your property to be able to settle his/her loan.
Why should you not you get a hard money loan?
There’s plenty of reasons reasons why a hard money loan is a bad idea. For example, hard money lenders often charge higher interest rates. This is because of the fact hard money companies think they are taking substantial risks by lending on an investment property – and want to be reimbursed at a higher rate than what a bank would charge. High interest rates make hard money loans economically toxic for some types of deals. In addition, hard money lenders have shorter terms than traditional lenders – that also makes them unattractive. Traditional lender offer 30 year periods but private money lenders offer only 1-3 year terms.
Hard money lenders can finance your deals fast
Hard money lenders serve a very specific group of individuals, i.e. real estate investors. Hard money lending is a type of short term lending, which is secured by real estate. Specifically, the people who use hard money loans are typically real estate investors – typically, people who are being denied a traditional loan as a result of stringent guidelines.
Hard money lenders exist since they’re fast, and offer loans with little to no headaches. Hard money lenders have a fast application system. They expect collateral and don’t look at your credit rating. They focus on your experience, as opposed to your credit score. If you have a bad financial history, it will be much easier to obtain financing by using a hard money loan rather than a conventional loan which is granted based on your credit report. Below are scenarios where hard money lenders fill a void that conventional lenders do not touch:
Delray Beach Hard money loans can be used for fix and flip real estate investors
Most traditional lenders will not offer you a loan for a fix and flip job. If the home is in poor condition, or there’s some other abnormality with the home, then a conventional lender will not give you funding. In addition, most fix and flip prospective deals”go quickly.” The seller is very motivated to sell the property, and will accept the first deal. Conventional lenders take forever, so by the time the loan is approved – you have already lost the property since someone paid cash for it. If you have a hard money lender on your side who can close a loan in 5-10 days, you can find the fix and flip property.
Hard money can be a form of bridge funding
From time to time, your job goes over-budget and as a result you require additional capital. Some traditional lenders will refuse, because the job isn’t finished. While this can be catastrophic, a hard money lender might be willing to lend you the funds. Hard money lenders are happy to provide money to bridge the gap in funding, and can work with you to fill this void.
Hard money gives you bargaining power
If you are a real estate agent, more funding means more deals. By using outside money, you can focus on more simultaneous deals that would otherwise not be possible. Traditional lenders consider your overall debt to income ratio, and will not give you funding if they believe you have a lot of existing debt. In contrast, a hard money lender does not care about your income, nor do they care about your outstanding financial obligations. The one thing a hard money lender will care about is the value of your property. Hard money loans are excellent for developers who need funds to get their project started but are not a fantastic fit for traditional lenders. Remember, traditional lenders aren’t interested in taking on extra risks – they legally aren’t allowed to following the 2008 economic crisis. Hard money loans typically finalize faster than conventional loans from a bank, which allows you to move faster. Many property sellers will be extremely reasonable on their price and willing to give you an easier time – if you can show proof funding. Many property investors that rely on traditional lenders are unable to move fast due to delays due to the cumbersome guidelines traditional lenders have. Speed and unlimited money, is why hard money is good.