Hard money loans are a completely different animal than the traditional funding. Traditional banks are going to look at your creditworthiness first, then scour your credit history down to the last detail. With hard money loans, private investors are more flexible. Hard money lenders are asset-centric lenders, meaning they take collateral in order to securitize the loan. Instead of relying on your credit worthiness, they rely on the asset you pledge in order to get the loan. If you default on the loan, they have the right to take possession of your asset and sell it.
When you are new to the real estate industry, don’t assume that investors are going to come running because you have the chance to make a small fortune on a property. Without any track record, you need to slow down and focus your efforts on how to convince a potential investor to take a chance on you. When you are starting a house flipping business and already have a buyer on the hook, don’t get too aggressive with investors because they might not be as excited about this project as you are.
Getting approved for a hard money loan is all about the documents you bring to the table. Hard money lenders are interested in one thing: return on investment. You have to prove to them their investment is secure, and that you can complete the project. We suggest getting an appraisal done on the property, speaking with contractors about estimates for work that needs to be done, and showing hard money lenders there is a strong demand for the property when repaired.
Having an appraisal of the property now is a start, but most hard money lenders want to see how much it will be worth after all the work is completed. Otherwise known as the ARV, the after repair value is the key to securing the funding needed to get the lenders to fund you. Part of the application process includes showing how the loan will multiply the value of the property when completed, minus expenses.
When it comes to traditional lenders, they are are usually inflexible. They have stringent guidelines, and have to adhere to them. When it comes to hard money lenders, there are no stringent guidelines. Most lenders are care about one thing: the overall chance of you succeeding. Where traditional lenders might say your project isn’t feasible, a hard money lender may be more willing to take on additional risk.
What distinguishes Maine hard money lenders from regular lenders?
The main difference between banks and hard money lenders is the fact hard money lenders are asset centric lenders. They look at on the asset associated with the by the person requesting the funds. In contrast, traditional lenders focus on credit and liquidity. It is very important to remember hard money loans are not great for the long run. The purpose of a hard money loan is to be a short term loan that gets you the home you’re trying to acquisition. Hard money lenders focus on short term loans that reap a great ROI. If you are unable to pay the hard money lender back, then the hard money lender can take possession of your property in order to settle his/her loan.
What are some negative of hard money
There are many reasons reasons why a hard money loan is a bad idea. For instance, hard money lenders look for higher interest rates. This is because of the fact hard money lenders think they’re taking substantial risks by lending on an investment property – and wish to be reimbursed at a higher rate than what a bank would charge. High interest rates make hard money loans economically toxic for some kinds of deals. In addition, hard money lenders have shorter terms than traditional lenders – that also makes them unattractive. Traditional lender provide 30 year terms but hard money lenders offer only 1-3 year terms.
Hard money lenders can help fund your next loan
Hard money lenders serve a very specific group of individuals, i.e. real estate investors. Hard money lending is a form of bridge term lending, which is secured by property. Specifically, the men and women who use hard money loans are generally real estate investors – typically, those who are being denied a conventional loan due to stringent guidelines.
Hard money lenders exist since they’re fast, and provide loans with little to no headaches. Hard money lenders have a relatively simple application system. They expect collateral and don’t look at your credit score. They concentrate on your experience, rather than your credit score. If you have a checkered financial past, it will be easier to obtain financing with a hard money loan as opposed to a conventional loan which is granted based on your credit report. Below are situations where hard money lenders fill a void that traditional lenders do not touch:
Maine Hard money loans can be used for repair and flip property investors
Most traditional lenders will not give you a loan for a fix and flip job. If the house is in poor condition, or there’s some other abnormality with the house, then a conventional lender won’t give you funding. In addition, most reverse and fix potential deals”go quickly.” The seller is extremely 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 because someone paid cash for it. For those who have a hard money lender on your side who can close a loan in 5-10 days, you can get the fix and flip property.
Hard money loans are essentially bridge loans
Sometimes, your project goes over-budget and as a result you require additional funding. Some conventional lenders will deny, because the job isn’t finished. While this can be catastrophic, a hard money lender might be willing to lend you the money. Hard money lenders are happy to give money to bridge the gap in funding, and can work with you to fill that void.
Hard money gives you leverage
If you are a real estate agent, more funds means more deals. By using outside money, you can work on more simultaneous deals that would otherwise not be possible. Conventional lenders look at your overall debt to income ratio, and will not give you funding if they think 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 fixate on is the value of your property. Hard money loans are excellent for developers who need funds to get their project started but aren’t a fantastic fit for conventional lenders. Keep in mind, traditional lenders are not interested in taking on additional 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 willing to work on their price and ready to cut you some slack – if you can show you have funds available. Many real estate investors that rely on traditional lenders cannot move fast because of delays because of the strict guidelines conventional lenders have. Speed and unlimited money, is why hard money is good.