Long Island Business loans can be hard and confusing. However,…
Hard Money Loans Westchester[yoast-breadcrumb]
The real estate market, which is finally making a positive comeback, is bringing about new business for borrowers and lenders alike. Many borrowers are utilizing hard money loans to help them complete their financial transactions. Hard money loans are substantially different than conventional mortgage loans. Here is an overview of what hard money loans as well as how they differ from conventional loans.
What are Westchester Hard Money Loans?
Westchester hard money loans are loans typically used to purchase homes or real estate property. They are most often used by individuals or companies who wish to purchase property, renovate it and resell it. Those in the fix-and-flip business usually always use hard money loans because they get their properties at real estate auctions and need to pay for the property quickly.
Westchester Hard Money Loans vs Westchester Conventional Mortgage Loans
There are many differences between hard money loans and conventional mortgage loans.
• Financing – Soft money or conventional mortgage loans, obtain their financing from conventional banks and credit unions, whereas hard money loans are financed through private investors or investment companies.
• Loan Terms – Soft money loans have terms that go from ten years to 30 years. Hard money loans generally go for one year, although some may go up to three years.
• Interest Rates & Fees – Hard money loans have higher interest rates than conventional loans. Hard money loans are riskier than traditional loans, and thus lenders charge a higher interest rate.
• Eligibility Requirements – Conventional mortgage loans have many requirements borrowers must meet such as income, employment, credit scores and work history. Hard money loans are based solely on the value of the property and the borrower’s equity, making it much easier for approval.
Benefits of Westchester Hard Money Loans?
Despite not being financed by conventional banks and charging higher fees, there are still many benefits with hard money loans.
• Faster Approval – Because the property value is the main approval criteria, hard money loans can be approved in a couple of days, unlike conventional loans that can take weeks.
• More Flexible – Hard money loans come from through private investors so they’re often more willing to negotiate loan terms and payments. In contrast, traditional lenders are very firm on what they can, and cannot do.
• Credit Not a Factor – Hard money loans are the ideal solution for individuals with limited or poor credit because credit scores aren’t looked at. Most hard money lenders look only at the viability of your project, and how you plan on replaying the loan.
• Credit History Not a Factor – Because the property value is the main criteria, borrowers can be approved for more than one hard money loan at one time. Conventional banks, on the other hand, would typically not approve more than one loan because approval is based on income-to-debt ratio.
Disadvantages of Hard Money Loans
Despite the many benefits of hard money loans, like most financial transactions, there are also some pitfalls to hard money loans that potential borrowers should be made aware.
• Higher Interest – Some borrowers don’t realize the higher interest rates until after they’ve completed the transaction.
• Shorter Loan Terms – The shorter loan terms, which are usually considered a plus, can be a disadvantage if you’re not ready to pay off the loan when the term is up.
• Higher Fees – The fees that are associated with most loans are substantially higher with hard money loans.
• Fewer Regulations – Hard money loans don’t come with the same regulations as conventional mortgage loans so borrowers should be aware of with who they’re doing business.
Delancey Street offers loans throughout the USA. If you need funding for your next commercial or residential project, fill out our contact form or call us. We have over $200 million available to fund new projects, and can work with you.
How is a hard money lender different from a regular lender
The most important difference between traditional lenders and hard money lenders is the fact hard money lenders are asset based lenders. They entirely revolve their decision based on on the collateral associated with the hard money loan. In contrast, traditional lenders hone in on credit and how much money the potential borrower has. It’s super important to remember hard money loans aren’t great for the long term. The objective of a hard money loan is to be a short term loan that which helps you get the home you are trying to purchase. Hard money lenders focus on short term loans that get them a great ROI. If you are unable to repay the loan you took, a hard money lender can foreclose on your property to be able to settle his/her loan.
When is the right moment for a hard money loan
Hard money loans are used as investment tools by investors. Here are some situations where a hard money loan is a great idea, such as:
Unable to get financing elsewhere. Funding real estate investments is tricky. Traditional mortgages are difficult to acquire under normal situations. Banks are extremely cautious of making loans for real estate investments, as opposed to loans for primary residences. As a result, if you’re looking for investment funds – then get a hard money loan.
You have a poor credit history. 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 – revolve around how likely it is you will repay the loan. This means if you’ve got a poor credit history or no stable income – then you might not get approved for financing. You need money. Hard money loans are great so you can get money ASAP. Traditional loans take time. Hard money is very fast. If you will need to capitalize on a chance immediately, then it is possible to get a hard money loan. If you can wait several weeks, then it’s better to get a hard money loan.
Hard money lenders can help finance your next deal
Hard money lenders assist a very specific group of individuals, i.e. property investors. Hard money lending is a form of bridge term financing, which is secured by real estate. Specifically, the men and women who use hard money loans are generally property investors – typically, those who are being denied a conventional 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 smooth application system. They expect collateral and don’t look at your credit score. They focus on your experience, as opposed to your credit worthiness. If 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 which is granted based on your credit report. Below are situations where hard money lenders fill a void that traditional lenders do not touch:
Hard money loans can be used for fix and flip real estate investors
Most traditional lenders won’t give 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 home, 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 since 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 get the fix and flip property.
Loans from private money lenders are great for consumers with poor credit
Most traditional lenders look at a borrower’s credit score. They look at your income and explore past delinquencies. This means that someone with a checked credit history will have a challenging time, and in some instances never get approved. When this occurs, your only choice is to work with a private lender. While the rates of interest for a hard money loan are higher than conventional loans – if you can still make money, it may make sense to spend the money.
Hard money gives you leverage
If you’re a real estate agent, more funds means more deals. By using outside hard money, you can get involved in more simultaneous deals that would otherwise be impossible. Conventional lenders look at your overall debt to income ratio, and will not give you funding if they think you have a lot of existing debt. In contrast, a hard money lender doesn’t 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 asset. Hard money loans are great for developers who need funds to get their project started but aren’t a fantastic fit for conventional lenders. Keep in mind, traditional lenders aren’t interested in taking on extra risks – they legally aren’t allowed to after the 2008 economic crisis. Hard money loans are finalized faster than conventional loans from a bank, which permits you to move faster. Many property owners will be extremely reasonable on their cost and ready to work with you – if you can show you can pay immediately. 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.