What makes a hard money lender different from a conventional lender
The critical difference between traditional lenders and hard money lenders is that hard money lenders are asset centric lenders. They entirely revolve their decision based on on the collateral associated with the by the person requesting the funds. In contrast, traditional banks focus on your credit and how much money the potential borrower has. It’s super important to remember hard money loans are not great for the long term. The objective 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 6-24 month termloans that get them a great ROI. If you fail to repay the hard money loan, then the lender can take over your property to be able to repay 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 rates of interest. This is because of the fact lenders think they’re taking huge risks by lending on an investment property – and wish to be reimbursed accordingly. High interest rates make hard money loans unaffordable for some kinds of deals. In addition, hard money lenders have shorter loan terms than traditional lenders – which also makes them unattractive. Traditional lender offer 30 year periods but hard money lenders offer only 1-3 year loan terms.
Hard money lenders can help finance your next deal
Hard money lenders serve a very specific group of individuals, i.e. property investors. Hard money lending is a form of short term financing, which is secured by property. Specifically, the men and women who use hard money loans are typically real estate investors – typically, people who are being denied a conventional loan as a result of 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 anticipate collateral and don’t look at your credit rating. They focus on your expertise, rather than your credit worthiness. If you’ve got a bad financial history, it will 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 conventional lenders don’t touch:
Nassau Hard money loans can be used for repair and flip property investors
Most traditional lenders won’t offer you a loan for a fix and flip project. If the house is in poor condition, or there’s some other abnormality with the house, then a conventional lender will not give you funding. Additionally, most reverse and fix potential deals”go quickly.” The seller is very motivated to sell the property, and will accept the first deal. Traditional 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 find the fix and flip property.
Hard money can be a form of bridge funding
Sometimes, your job goes over-budget and as a result you need additional funding. Some conventional lenders will refuse, because the project isn’t finished. While this can be devastating, a hard money lender may be willing to lend you the funds. Hard money lenders are happy to give money to bridge the gap in financing, and can work with you to fill this void.
Hard money gives you bargaining power
If you are a real estate investor, more funds means more deals. By using outside money, you can focus on more simultaneous deals that would otherwise be impossible. Conventional lenders consider your entire debt to income ratio, and will not give you funding 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 outstanding financial obligations. 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 traditional lenders. Keep in mind, traditional lenders are not interested in taking on additional risks – they legally aren’t allowed to after 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 cost and ready to cut you some slack – if you can show you can pay immediately. Many property investors that rely on conventional 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.