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Philadelphia Hard Money Loans – Fast – Transparent
When you need to buy an investment property – you do what everyone else does, you go to a traditional lender. You assume the lender will help you get the necessary funding to move forward with your plans. Sounds simple, right?
The process of getting financing through traditional lending institutions can be a long drawn out process. There are often many hoops to jump through and pitfalls to watch out for. You may have to pay points on a traditional loan. You will definitely have to undergo a credit check and income verification process. Of course, there is no guarantee that you will acquire the financing you need even after you have jumped through numerous hoops. Traditional lenders have a very opaque, and long, process. Without sufficient funding, you can pretty much kiss your dreams of moving forward with your project goodbye. If you have gone through this sort of financial jerking around, you know how frustrating it can be. Now, if you’re on our website – it’s probably because you’ve heard about hard money loans, and want to know more about them.
More importantly, you want to know how a Philadelphia hard money lender can help you – and what a Philadelphia hard money lender is looking for when.
Credit or Collateral
When you approach a traditional lending institution for a loan, they have to do a credit check, verify your income and determine what kind of risk you pose as a borrower. This is because a traditional loan is acquired without any collateral. You can’t go to your local bank, and put your existing property up as collateral to guarantee the fact you’ll pay the loan back. Many people mistakenly think that banks will accept collateral – but they won’t. Most traditional lenders can’t look at the collateral you have for the loan. What they look for is your ability to repay the loan. Having cash in your bank accounts is helpful – in proving that, but the banks also look at things like credit score and employment history.
In contrast, a hard money lender doesn’t look at your credit score, etc. In fact, you could have awful credit and still qualify for this kind of loan. What a hard money lender is interested in is what kind of collateral you have in your possession. Hard money lenders are unique, in that they can accept collateralized assets to justify the loan. For example, if you ask for a loan to buy a property – the Philadelphia hard money lender uses the property as collateral in question to justify the loan. If you default on the loan, the lender takes your collateral, sells it and the money obtained is used to pay off your remaining debt owed to the lender or lending institution. In this sense, a hard money lender has a far better guarantee that they will get back their investment, because they are not depending on your credit score or any income verification processes to determine if you can pay back the loan.
Philadelphia hard money lenders look at the value of the property you offer up for collateral as the basis for how much they can afford to lend you. If the value of the property is not greater than the hard money loan, then it’s unlikely you’ll be able to qualify for a hard money loan. If you still want to proceed with getting a loan, it’s likely the lender will ask you to put up other assets as collateral.
Loan Duration and Interest
If you purchase a home loan through a traditional lending institution, the loan will generally be set on a payback schedule of payments amortized over 15 to 30-years with a relatively low interest rate. Since a Philadelphia hard money lender operates like an investor, they are looking for a high rate of return over a shorter duration. The duration of a hard money loan is typically around 4 to 24 months. The interest rate associated with this kind of loan can be in the double digits. The advantage here is that you are not locked into a repayment schedule that stretches out potentially for decades.
Who Uses Hard Money?
Typically, the type of person looking for a hard money loan is a real estate developer that needs to move fast on an opportunity. For example, if you are a real estate investor and a great deal has come your way, you may not have the luxury of wasting time jumping through hoops. By putting up property as collateral for the loan, you’re able to get competitive rates on loans.
Philadelphia Hard Money Loans
The Great Recession and various financial crises that have taken place in the subsequent years have had strong ripple effects on credit markets nationwide. Many people who were negatively affected by the housing crisis, and other economic woes, ended up with poor credit scores. Many of these people borrowed money for investment properties, and couldn’t repay the loan after the economy went downward. As a part of the reform process, traditional banks are no longer allowed to lend on real estate investment properties. This resulted in more attention being drawn to the concept known as, “hard money.” While hard money is a risk for both investors and borrowers alike, they fill a void. Many real estate investors need hard money loans in order to remain in business. Without this source of funding, they can’t purchase new properties at all. This can be for a number of reasons.
Hard Money: What is It?
Hard money loans are a part of the informal lending market. Philadelphia hard money lenders focus their collective efforts on people and companies that have cannot obtain loans from mainstream lenders.
Many hard money lenders deal with individuals and business entities that may have less than perfect credit records. In order to serve this market, lenders rarely run credit checks on their hard money loan applicants. Rather, these loans are usually backed up by collateral. In addition to their collateral requirements, hard money brokers usually charge their borrowers high interest rates which can reach 15-percent.
Hard money lenders accept personal or commercial property as collateral for their loans. Typically, lenders prefer to make “low” loan to value hard money loans. This reduces the financial exposure the lender has. In the event the borrower defaults on the loan, the lender has a higher chance of getting his money back when he/she liquidates the property.
Who are Hard Money Brokers?
Hard money brokers are individuals who facilitate hard money loans. They act as intermediaries between lenders and borrowers. In many jurisdictions, hard money brokers are also real estate brokers who provide loans to individuals and businesses.
In order for large institutional lenders like banks to legally make loans, they must comply with many regulations. In contrast, investors who operate in the informal credit market face fewer barriers.
Many hard money investors form corporations that may include any number of people. These legal entities can help to protect business owners from most liability issues. They may also need to conform to the lending regulations. For example, many jurisdictions limit the amounts of interest that loan brokers can charge their customers.
What does Delancey Street care about
Delancey Street cares about one thing only: the success of your project. Real estate investors turn to us when they need a reliable, and trustworthy, hard money lender in Philadelphia who will work with them. We provide creative financing, and work diligently to help you get approved for your next hard money loan. The main thing we care about is whether or not your project will succeed. If we think your project has potential, we’ll fund it. We care about how much money you need, what you need it for, how you intend on using it, and when you’ll repay it. If we think your business plan makes sense, we’ll work with you and fund you. It truly is that simple.
What’s the maximum loan to cost for Philadelphia hard money lenders?
HM lenders look at two different measures when looking at deals. They look at LOAN TO COST, and LOAN TO VALUE. Most HM lenders won’t exceed a loan to cost ratio of 75%. Most HM lenders will keep their loan to value ratio around 60-65%. HM lenders may use the lesser of the LTC or LTV, to assess the risk of a loan.
What to look out for with Philadelphia hard money loans?
Philadephia hard money loans can provide a lot of benefits. Here are some of the downsides of them.
- Interest rates are usually high for HM loans. It’s not uncommon for the interest rate to go into the double digits. For example, if you take a $100,000 30 year mortgage at 7% APR, you’d pay almost $77000 more in interest payments than a traditional mortgage which will have a 3.5% APR. Most HM loans are made over a 3-24 month periods, as opposed to traditional loans which can be paid off over 30 years.
- Lack of clear regulations is a problem with HM loans. Compared to traditional mortgages there is very little regulation of HM loans.
- Many HM loans have high fees in addition to high interest rates. For example, HM lenders might ask for origination fees, underwriting fees, early payment penalties, and more.
- HM loans typically have a shorter term than traditional mortgages. For example, HM lenders will offer loans over a term of 1-2 years, whereas traditional lenders will give 30 years.
- Some traditional lenders will require you to own the property for a minimum length before agreeing to refinance your property. This can cause issues for you if your HM loan is due before you are eligible for refinancing the loan.
Why is the loan term important?
Real estate financing often uses industry jargon and terminology that some applicants are not familiar with. Regardless of the type of loan that you are interested in applying for, you need to have an idea of what loan term you’re looking for. It’s critical, especially for HM loans – to know what loan term you need to make your business plan work. Generally speaking, loan term is a broad term that describes the length of the loan. It can be used more broadly to describe things like: the loan amount, interest rate, prepayment penalties, etc, but specifically refers to the length of the HM loan.
For example, in traditional residential loans – it’s common for the loan term to be 30 years. That means the lender is giving you 30 years to repay the loan. When it comes to HM, loan terms are usually shorter. Generally, you can expect a HM lender to offer a loan term of 6-24 months. This timeframe can range from one lender to the next. In addition, some lenders offer you the privilege of extending your loan after the term is over. Some extensions can last from 3-5 years.
Most residential loans you’re familiar with are fully amortizing. That means the entire loan balance is repaid over the term length. At the end of the loan term, there is no balloon payment. HM loans are different. Most HM loans are interest only, meaning no principal is repaid during the term of the loan. The HM lender’s principal is repaid at the end of the loan via a large balloon payment.
Because HM loans have a shorter loan term, it’s critical borrowers have an exit strategy before they get a loan. There are many options when it comes to exiting, such as refinancing into a traditional loan, or selling the property. It’s important you’re aware of the loan term/due date, in order to avoid potential issues later. Never accept a HM loan term without having a calendared business plan in place.
HM lenders will typically never issue loan terms until they’ve reviewed your loan proposal. The lender will ask for things like costs to develop/rehab the property, a timeline for completing the work, and more. HM lenders know you can’t obtain long term financing in the middle of a major project, and will customize the loan term around that fact.
Why Do Hard Money Lenders Exist?
Hard money lenders server a very specific group of people, i.e. real estate investors. Hard money lending is a form of short term lending, which is secured by real estate. Specifically, the people who use hard money loans are typically real estate investors – typically, those 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 expect collateral, and don’t look at your credit score. They focus on your experience, rather than your credit worthiness. If you have a checkered financial past, it’ll be easier to obtain financing by using a hard money loan rather than a conventional loan which is granted based on your credit report. Below are situations where hard money lenders fill a void that traditional lenders don’t touch:
Fix and Flip Loans
Most traditional lenders will not give 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 traditional lender will not give you funding. In addition, most fix and flip potential deals “go fast.” The seller is very motivated to sell the property, and will accept the first offer. Traditional lenders take forever, so by the time the loan is approved – you’ve already lost the property since someone paid cash for it. If you have a hard money lenderon your side who can close a loan in 5-10 days, you can get the fix and flip property.
People With Bad Credit
Most traditional lenders look at a borrower’s credit report. They verify your income, and investigate past delinquencies. It means that someone with a checked credit history 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 hard money loan are higher than traditional loans – if the deal makes sense, it might make sense to take the money.
Sometimes, your project goes over-budget and as a result you need additional funding. Some traditional lenders will refuse, because the project isn’t completed. While this can be devastating, a hard money lender might be willing to lend you the funds. Hard money lenders are happy to give money to bridge the gap in funding, and can work with you to fill that void.