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Hard Money Loans New York (NY)
Are you wondering where you can find the money that you need for a great real estate investment opportunity? Your first inclination may have been to head to a local bank branch or to reach out to a mortgage broker. While these are common first steps to take when you have a real estate loan request, these are not the only financing sources that are available to you. The reality is that banks and credits unions are severely limited on the types of loan requests that they can look at. Many excellent real estate opportunities cannot be funded by banks and credit unions, but they could be very profitable to you if you can find a way to finance your plans. The good news is that hard money is another financing source that you can consider when bank loans are off the table.
What You Need to Know About Hard Money Loans
If you are like many people, you have heard about the concept of hard money, but you may not fully understand what it is or when it should be used. Like a bank loan, hard money financing is secured by real estate. However, hard money loans are substantially different from a real estate bank loan that you may be more familiar with. A hard money loan is underwritten and funded by a private lending company rather than by a financial institution. In some cases, a hard money loan is offered directly from a wealthy individual who views making a loan to you as an investment opportunity. These private money sources are not limited by strict underwriting requirements in the same way that banks are. Because bank loans have competitive pricing, loan requests that meet bank requirements usually are funded by banks. However, for many other scenarios, hard money may be a good fit. The unique nature of hard money loans usually creates a lower loan-to-value and a higher interest rate compared to bank loans. In addition, hard money often has a very short term, such as a 12 or 18-month term, with a final balloon payment.
How to Determine If Hard Money Is Right for You
Hard money loans do not have the financing terms that you may be accustomed to. The fact that these loans usually have a shorter term length followed by a final balloon payment means that you need to have a strategy for dealing with this balloon payment. For example, you may plan to refinance into a bank loan, but you will need to use the hard money loan to reposition the property or your personal financials so that you can qualify for permanent bank financing. You could also deal with the balloon payment by selling the property for a profit. To increase the chance of a big gain when you sell within a short period of time, substantial improvements may need to be made to the building or to the property’s income generation. In order to determine if a hard money loan is right for you, the use of a thoughtful exit strategy needs to be a legitimate option. It also needs to be an option that makes financial sense for you.
What It Takes to Qualify for Hard Money Loans
Qualifying for a hard money loans is often easier to do than qualifying for a bank loan. Private money lenders have increased flexibility to be creative with how they analyze loan requests. However, this does not mean that hard money is suitable for deals that do not make financial sense. When applying for your new loan, present the loan scenario so that the lender can easily identify all of the positive attributes of the scenario.
It can be frustrating to hit a road block with banks and credit unions when you are seeking real estate funding. However, when you open your mind to the possibility of using hard money to finance your project, you may be able to strategically take advantage of the real estate opportunity in front of you.
New York New Construction Loans
There are many reasons why business owners want to expand. There are some who are renting an office space and want a building of their own, and other business owners may want to expand their current office building.
While it may be necessary for business owners expand their businesses to reach new goals, this can be easier said than done. It is a costly project to construct a building or make renovations. Many construction projects cost thousands to millions of dollars to complete, and most growing businesses do not have the funds to dish out such an expense. Business owners in these situations may consider a construction loan.
What is a New York Commercial Construction Loan?
A construction loan is used to help a business owner cover the costs that are associated with the renovation of an existing building or the construction of a new building. The money from a commercial construction loan is typically used to purchase and develop land, pay for labor, and cover the cost of materials.
When to Consider a Commercial Construction Loan
A commercial mortgage is set up for business owners who want to purchase existing properties. However, a construction loan is made for business owners who want to construct a commercial building or renovate existing office space.
Commercial construction loans are not like other loans. With traditional loans, the borrower will be issued the loan in one lump sum. Once the loan has been disbursed, the borrower is then responsible for paying back the amount. Most loans have a fixed monthly payment that is at least 10 years.
With commercial loans, only partial funds are disbursed throughout the construction or renovation project. When a business owner gets a commercial loan, he or she will meet with the lender to establish a draw schedule. A draw schedule allows funds to be released to the borrower when project milestones are completed. For instance, the purchase of land may be the first draw, and the second draw may be when the building’s foundation has been poured. When each milestone is completed, lenders may have an inspector visit the construction/renovation site to make sure that the milestone is completed, which will authorize release of the next draw. This process will continue until the project is completed.
Another difference between a commercial loan and a traditional loan is the way they are repaid. With a commercial construction loan, you are only responsible for paying the interest on the money that has been disbursed. For instance, if you took out a commercial construction loan for 700,000, but you have only received $100,000 of the total loan, then you are only required to pay interest on the $100,000.
Most commercial construction loans are made so that the borrower only pays interest on the loan proceeds until the project is finished. Once the project is completed, the borrower can pay the principle balance in one lump payment. However, there is another option for those who don’t want to make one payment. A commercial mortgage uses the property as collateral and allows the borrower to pay back the commercial.
How You can Prepare for a New York Construction Loan
If you want to take out a New York commercial construction loan, then it can be helpful to prepare a business plan that outlines each step of the construction/renovation project. You can also put together a cost estimate plan that shows the lender what the cost of materials, labor, and other items will be.
If you have any questions about construction loans in New York, contact us at Delancey Street.
Hard loans are often used as the financing option of choice for real estate investors.These loans are easier to come by and allow investors to take advantage of many deals that they wouldn’t be able to finance otherwise.
What You Need to Consider with Hard Loans
Considering a hard loan? Depending on your situation, hard loans may be the right solution for you. Many investors choose hard loans when they have exhausted all their other options. Others go to hard money lenders first as they know they will receive their money as soon as possible.
When a Hard Money Loan is Right for You
Is a hard money loan right for you? Read on to find out.
- There aren’t any other financing options.Funding real estate investment ventures in Gainesville, Florida can become particularly complicated. While some investors might choose to find funding through a traditional mortgage, most banks are uncomfortable lending money for investment purposes, as they tend to provide loans for more personal projects.
If you can’t find funding elsewhere, hard money loans are a good option. As most lenders provide funding within the same week, with hard loans, you’ll have access to cash quickly and with little-to-no hassle.
- Your credit score isn’t high enough.When applying for more traditional methods of funding, investors with low credit scores will likely struggle to be approved. Hard loans are ideal for anyone with lower credit scores as lenders focus on an individual’s collateral (the property), rather than if they have the resources to repay the loan.
- You need money quickly and can’t wait for other options.In the world of real estate, opportunities pop up overnight. With such a fast moving market, investors that can’t front the cash quickly enough will find that their careers aren’t as successful as they could be. With hard money loans, investors can skip the longer waiting period that comes with so many other financing options.
When to Consider Other Options
Even with all of the opportunities that come with hard money loans, they aren’t the right choice for everyone. Depending on your situation, you may want to consider other financing options. If you find yourself in either of the following situations, you should think twice about applying for a hard money loan:
- It’s a buyer’s market.In a buyer’s market, homes aren’t selling as quickly as they used to. Investors hoping to make a profit off of their investment will set themselves up for failure if they choose to apply for a hard money loan. If the loan is due before the property sells, the borrower will be forced to refinance it, otherwise it will be foreclosed upon.
- Your refinancing plan isn’t ideal.If the property doesn’t sell, the borrower will have to have the loan refinanced. If you don’t have a proper plan in place for refinancing, a hard money loan isn’t the right option for you.
- There are better options available.Even with all the many benefits of hard money loans, there are other options that you may be better suited for. From a long-term perspective, hard loans are expensive. These loans should be used only when necessary by investors that have experience with them. If you find that your situation doesn’t require a hard loan, it’s a good idea for you to explore all of your options.
Understanding what situations merit hard money loans will allow you to make the best choices when it comes to your real estate investments. Let this guide inform your future investing decisions as you continue to investigate your financing options.