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Hard Money Loans Miami Beach
How is a hard money lender different from a traditional lender
The critical difference between traditional lenders and hard money lenders is that hard money lenders are asset based lenders. They look at on the asset associated with the by the person requesting the funds. In contrast, traditional banks focus on your credit and how much cash the borrower has. It’s very important to remember hard money loans are not good for the long run. The purpose of a hard money loan is to be a short term loan that gets you the property you are trying to acquisition. Hard money lenders focus on short term loans that generate greater ROI than leaving the money in the bank. If you fail to pay the lender back, then the hard money lender can foreclose on your property in order to settle his/her loan.
When’s a good time to consider getting a hard money loan
Hard money loans serve as investment tools by investors. Here are some examples where hard money is good, such as:
Unable to find financing elsewhere. Funding real estate investments is complicated. Traditional mortgages are tough to acquire under normal situations. Banks are very cautious of extending a loan for purposes of real estate investments, as opposed to loans for primary residences. Because of this, if you’re looking for investment capital – then get a hard money loan.
You have a bad credit . Hard money loans are based off the collateral of the investment, not your ability to repay. Loans made to customers – as opposed to private money lenders – are centered around whether you’ll be able to repay the loan or not. This means if you’ve got a poor credit history or no steady income – then you might not get approved for financing. You need capital. Private money loans are great so you can get money ASAP. Traditional loans take time. Hard money is very fast. If you need to capitalize on an opportunity immediately, then it is possible to find a hard money loan. If you can wait a few weeks, then it’s better to find a hard money loan.
Hard money lenders can help finance your next loan
Hard money lenders assist a very specific group of individuals, i.e. property 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 property investors – typically, people who are being denied a traditional loan due to stringent guidelines.
Hard money lenders exist because they are fast, and offer loans with little to no headaches. Hard money lenders have a streamlined application system. They anticipate collateral and do not look at your credit score. They focus on your experience, rather than your credit score. In case you have a checkered financial past, it’ll be much easier to obtain financing by using a hard money loan as opposed to a conventional loan that’s granted based on your credit report. Below are scenarios where hard money lenders fill a void that traditional lenders don’t touch:
Miami Beach Hard money loans can be used for repair and flip real estate investors
Most traditional lenders won’t offer you a loan to get a fix and flip job. If the house is in bad condition, or there’s some other abnormality with the house, then a traditional lender will not give you funding. Additionally, most fix and flip prospective deals”go fast.” The seller is very motivated to sell the property, and will accept the first offer. Conventional lenders take forever, so by the time the loan is approved – you have already lost the property because 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 get the fix and flip property.
Loans from private money lenders are ideal for people who don’t have great credit
Most conventional lenders look at a borrower’s credit history. They look at your income and explore past activities. This means that somebody with a checked credit score will have a difficult time, and in some cases never get approved. When this happens, your only option is to work 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 bargaining power
If you are a real estate agent, more funding means more deals. By using outside money, you can work on more simultaneous deals that would otherwise be impossible. Conventional lenders look at your overall debt to income ratio, and won’t give you a loan 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 only thing a hard money lender will fixate on is the value of your property. Hard money loans are great for developers who need funds to get their project started but aren’t a good fit for conventional lenders. Remember, traditional lenders are not interested in taking on extra risks – they legally are not allowed to following the 2008 economic crisis. Hard money loans are finalized faster than traditional loans from a bank, which permits you to move quicker. Many sellers will be extremely reasonable on their cost and ready to cut you some slack – if you can show proof of funds. Many property investors that rely on traditional lenders are unable to move fast due to delays because of the cumbersome guidelines traditional lenders have. Speed and unlimited money, is why hard money is great.
When obtaining a loan to purchase investment properties, the process can be difficult. Since banks prefer those purchasing residential properties, as well as those who have excellent credit, real estate investors who have had past problems with bad credit or other issues can be left out of the equation. However, as the popularity of hard money loans has increased in recent years, more real estate investors have found this to be a convenient and useful source of financing for various projects. But to use these loans as effectively as possible, it is important to know as much about them as possible.
The Property is Your Collateral
Unlike traditional mortgages where the bank looks primarily at your ability to repay the loan, a hard money loan lender looks instead at the value of the property you are wishing to purchase. Thus, the property itself becomes the loan’s collateral, making it much easier for you to be granted the loan. Since the lender will know that in the event repayment is not made they will obtain the property, they have little to lose. Because of this, they are generally willing to provide funding for various types of investments, such as construction projects, new businesses, and fix-and-flip properties.
Short Payback Periods
If you obtain a hard money loan, be prepared to pay it back much faster than a traditional mortgage, usually in no more than 12 months. However, depending on the lender you use and the circumstances surrounding your investment project, a lender may give you as much as three years to pay off the loan. But unlike a mortgage, you will not be making equal monthly payments toward principal. Instead, your payments will be interest-only payments, with a balloon payment at the end to cover any remaining principal, interest, and fees.
Easy and Quick Process
For many investors, waiting weeks for a mortgage loan to be approved is out of the question, especially if a property needs to be purchased as quickly as possible. By choosing a hard money loan, the ability to have cash in your hand is made much faster. Since these loans are made by private individuals and institutions that are required to follow few if any regulations, they can put money in your hand in less than one week in most cases. Along with this, the application process is much easier and convenient, since the lender is not wasting time doing credit checks and other time-consuming tasks.
Pay Attention to the Details
While there are many benefits associated with hard money loans, there can also be numerous pitfalls of which you should be aware. For starters, the interest rates on these loans can be quite high, often well into double-digits. Along with this, there will be numerous fees added to these loans, such as origination fees, underwriting fees, and any fees associated with early payback of the loan. And of course, since the payback period will be far less than a mortgage, make sure your investment plans are sound. Otherwise, you may either be foreclosed upon by the lender, or find yourself having to refinance the property, often at a much higher interest rate.
All Lenders are Different
While all hard money loans have basically the same financial details, that does not mean all hard money loan lenders are alike. While one lender may have little problem providing you with funds for a construction project, another may instead choose to focus primarily on fix-and-flip loans. Therefore, always ask other investors in your area for information about various hard money loan lenders who may be able to help you secure the financing you need. By doing so, you will have a number of options available to you in regards to financing your latest project.