When you have plans to buy real estate, applying for a loan may be one of the more important steps n your plan. After all, few people have the financial means to pay for real estate with cash. Those who do have the financial means to do so may not want to pledge such a large portion of their capital to their investment. However, there are instances when a bank loan is not feasible. Remember that bank loans have very specific underwriting guidelines that must be met, and many potentially lucrative real estate transactions may require a more creative approach to financing them. This is where hard money loans come into the picture.
What Is Hard Money?
As a real estate investor, you may have heard about hard money in passing, and you may have learned that these loans have high interest rates, high fees and a short loan term. While this is typically true, you may not have learned how advantageous they can be in specific situations. Bank loans are only available for real estate transactions that comply with all aspects of the bank’s underwriting guidelines. These guidelines usually pertain to the property that is being used as collateral and to the applicant. Hard money is a different type of real estate loan. Rather than looking at the applicant’s qualifications, only the property is reviewed. More specifically, the property’s value is the most significant criteria that is analyzed. Borrowers who cannot document their personal income or who have bad credit scores may qualify. In addition, New Jersey hard money lenders do not have specific underwriting guidelines, and they have the flexibility necessary to be creative.
How Can New Jersey Hard Money Lenders Be So Flexible?
You may be aware that banks have underwriting guidelines for a reason, and this is generally so that they do not make bad loans that are likely to default. However, because their guidelines are so stringent, they are not able to lend on real estate transactions that have merit and that could be very lucrative. New Jersey Hard money lenders do not have the same qualification requirements that banks typically have. More than that, hard money typically comes from a private or non-institutional financing source. Private lenders approve loan requests based on their own guidelines, and these guidelines are not always concrete. Many private lenders review the merits of a loan.
What Are Expected Loan Terms?
One of the primary benefits of New Jersey hard money loans is that the lender has the freedom to be flexible with regards to loan requests. Because of this flexibility, and because a hard money lender is using its own funds as a source of financing capital, you can typically expect a much higher interest rate. Hard money loans are intended to be short-term loans, and because of this, they have a term length that is usually 18 months or less. Extensions are granted in some cases. A fully-amortized loan with such a short term would result in huge monthly payments. Therefore, these loans are usually partially-amortized or interest-only. This creates more affordable monthly payments as well as the need to make a final balloon payment.
If you have a great project that could result in substantial gains for you, you must find a way to finance your project. While a bank loan would be more affordable in many cases, a bank loan may not be an option. After all, your project may not meet a bank’s underwriting requirements. Because a bank loan is off the table, you need to find a more creative approach to financing. By reaching out to a New Jersey hard money lender today, you can funding that will keep your project afloat. Hard money lenders determine specific loan terms after reviewing your specific loan request.