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.