When Should You Use an Orange County Hard Money Lender?
For many, a traditional loan isn’t an option. If your credit score is in the gutter due to late payments, penalties, or a bankruptcy, this can hurt your chances of getting both a residential loan and/or a real estate investment loan. In situations like this, you’ll need a hard money loan instead. Hard money loans are different from traditional loans since they involve one additional variable: collateral. Traditional lenders looks at your ability to repay the loan by evaluating things like your credit score, your debt-to-income ratio, etc. In contrast, most hard money lender will pay attention to your collateral, your business plan, and essentially how you plan on repaying the loan. In contrast to traditional lenders, i you default on your loan, the hard money lender will sell those items to recoup their loss. Hard money loans generally last between 1-3 years due to their high-interest rates; anything longer than that has the potential to do more harm than good.
Below are examples of situations where a hard money lender is a great idea:
If You Need Cash Fast
One of the downsides of traditional loans is the time it takes to get approved. Because there are so many financial documents to work through, such as financial statements, credit reports, income documents, etc, it can literally takes months to finalize your loan. In contrast, hard money lenders don’t look at many of those things. The only thing a hard money lender will look at is the value of your collateral. Most hard money lenders don’t want to take possession of your property, and if possible – would prefer you pay the loan back. But, in the event you don’t – they are protected by the fact they can take possession of your collateral and sell it. Traditional lenders have to go through a formal process, like foreclosure, and have to go through many hoops. In contrast, hard money lenders can finish that process a lot quicker. Bottom line, if you’re a real estate investor – speed is critical, and you need to be able to move fast to secure projects.
Hard money loans are simple compared to traditional loans. This is due to the fact you’re using collateral to secure the loan – so it removes a lot of the headaches and risks associated with traditional loans. In addition, because most hard money lenders don’t have the huge corporate bureaucracy associated with traditional lenders, you can call a hard money lender and get answers faster.
If your credit score is tarnished, and you have bankruptcies, etc, on your record – then getting approved via a traditional lender is close to impossible. As a result – a hard money loan is ideal for situations like this since hard money lenders don’t look at your score.
How it’s different
Most hard money lenders offer loans at LTV’s up to 70-80%, in contrast to traditional lenders who can do loans up to 90-95%. This can be a huge problem if your finances aren’t great, and you need more than 70-80%. In addition, hard money loans cannot be used for primary residences. Typically, hard money lenders will only give you money for investment properties. The property can be either residential or commercial, but it can’t be the one you live in primarily. Having said that, you can buy an investment residential property which you rent out with hard money. Despite the conditions on hard money loans, they are super useful, and many people use them to expand their real estate empire. It’s important you look at hard money as a “means of leveraging,” someone else’s money to increase your buying power.
Getting a loan from the traditional lenders can be a real hassle, especially when you have an imperfect credit history. With a low credit score, it could take you weeks or even months to be approved for a loan. It does not matter that sometimes you are in dire need of quick cash. Hard money lenders, on the other hand, consider the collateral you are giving up rather than your ability to pay the loan back. Hard money loans are often intended to boost businesses or buy a house. If you fail to pay back the hard money lent to you, the lender will seize the collateral and sell it to get their money.
Orange County Hard money loans are most convenient and beneficial to investors who want to renovate or develop a real estate property before selling it at a higher price. They generate their profit and pay back the borrowed money within a short period.
Orange County Hard money loans, like any other product, has its advantages and disadvantages. This article discusses some of the pros and cons of hard money loans.
Pros of using an Orange county Hard Money Lender
The hard money loan market is hot with amazing offers, and the lenders are not worried about your credit rating. The lenders are more concerned about the collateral and will process your loan quickly if they approve your application. It is important to note that hard money lenders are not necessarily interested in taking possession of your property. They are fast because they spend less time verifying your income, bank statement, and other details. It is much faster and will work to your advantage if you have an existing relationship with the lender.
Unlike the traditional loans, orange county hard money loans agreements and terms are flexible. Instead of dealing with a large corporation, you will be talking to an individual who is willing to help you design the best repayment plan. They do not follow or set standardized procedures to determine how you will repay the loan.
When it comes to borrowing a hard money loan, the lender is more focused on collateral. If you want to invest in real estate, the lender will give you a loan worth as much as the property. In case you have other assets to place as collateral, the lender will also consider its value before approving the loan.
If you have any issues with your credit history, it will not be that important. Some lenders don’t even consider your credit rating. Nonetheless, you will need to discuss your personal finances with them.
When it comes to loan-to-value ratios, hard money lenders keep them to the minimum with the highest being between 50 and 70 percent. They do this to give themselves a better chance of getting their money back if they have to sell the property after your inability to pay the loan.
You can apply and get an orange county hard money loan within a matter of weeks. This is advantageous, especially to borrowers looking to invest in mortgages. The investor will not wait too long to get the money he or she needs to pay off a hot property. Traditional loans involve a much longer process and take time to be approved.
• Repayment period
Unlike the traditional loans that take longer to be paid, hard money loans are designed as a short term lending tool. This means that you need to repay the loan within the shortest time possible before the lenders repossess your property. If you do not meet this requirement, the lender will take the property into the market to try and get back his/her money.
• Increased expenses
In contrast to the traditional loans, hard money loans are costlier. In addition to the loan origination, you will also cover servicing and closing expenses. If you take a orange county hard money loan on mortgage, it may cost you 10% more than it would have on the traditional loans. Needless to say, hard money loans are considerably convenient.
However, you need to consider aspect of higher expenses.
The interest rate for repaying the hard money loan is also high because the lenders are facing higher risks when giving you the loan. The interest rates usually range between 9 and 14 percent.
• Requirement of Equity
Before giving you a hard money loan, lenders require you to give a down payment of up to 25-30 percent. This is supposed to act as an incentive to motivate you to stick to the agreement. This is because they try as much as possible to keep you interested in paying back their money. It also helps the lender to tie you into the contract even when you realize you are making a loss.
Before committing to a orange county hard money loan, you should first assess all the available lenders, their rates, and conditions. You should also consider the benefits and drawbacks of hard money loans before applying for one.
In a perfect world, everyone would be able to qualify for a typical mortgage. However, since that is not the case, many who are wanting to make a real estate purchase must turn to other sources of financing to make their dream a reality. If qualifying for a conventional mortgage is out of the question, a hard money loan may be the answer.
Types of Hard Money Loans
Depending on a person’s needs, there are many types of hard money loans available. These include bridge loans, fix-and-flip loans, owner-occupied loans, and construction loans. Since hard money loans are mostly given to entrepreneurs and those seeking to purchase investment properties, these loans serve various purposes. For example, a bridge loan allows an investor to quickly purchase a property, then resell it or refinance it at a later date. With a fix-and-flip loan, an investor can purchase a property, make whatever repairs they wish, then sell it quickly and have the loan paid off.
Hard Money Loan Specifics
Due to hard money loans generally not being made to those seeking to purchase a home in which they will live, there are certain specifics associated with these loans. For starters, they are of very short duration, often only 12 months. In addition, rather than make equal payments each month, investors only make interest-only payments. This differs greatly from traditional loans, in that hard money loans are granted based on the value of one’s collateral, which is the property to be purchased, instead of the person’s ability to repay. However, when the time does come to pay off the loan, it is done so with a balloon payment at the end, which covers the entire principal, interest, and fees.
Not Your Traditional Bank Loan
Needless to say, hard money loans are not like traditional bank loans. Unlike bank loans, these loans come with very short repayment periods and higher interest rates. However, they also often provide money to individuals who have had credit issues, bankruptcies, or other financial difficulties that would disqualify them from getting a bank loan.
Increased Investment Opportunities
Since applying for bank loans can take weeks or even months, hard money loans offer serious real estate investors a chance to have large amounts of cash available to them very quickly. Because of this, it becomes much easier for them to purchase a prime piece of property, rather than having to sit by and watch another investor get a great deal.
While hard money loans work very well for many investors, there are some possible pitfalls to consider. For example, since they come with much shorter payback periods than traditional loans, an investor will need to sell the investment property within that time frame, or perhaps choose to refinance the property with a traditional mortgage. Along with this, a number of fees are also part of hard money loans, such as origination fees, underwriting fees, and penalties for early payment.
How to Secure a Hard Money Loan
When the time comes to find a lender for a hard money loan, don’t bother visiting your local bank. Instead, ask other real estate investors in your area for guidance. In most cases, hard money loans are given out by private institutions and even individuals, so chances are other investors in your network will know several hard money loan sources nearby.
Offering a less-stringent application process, the ability to get cash fast, and greater flexibility in how the loans can be used, hard money loans are a smart choice for many entrepreneurs and investors. Thus, if you are wanting to purchase a property to start a business or fix-and-flip for a quick profit, a hard money loan may be just the ticket you’ve been searching for all along.