Where do hard money loans come from?
Before we discuss who is funding the hard money loans, it is important that you have a full understanding of what these loans entail. Unlike traditional loans you can get at the local bank – hard money loans are easier to get. Hard money loans are referred to as bridge loans, basically fast money used for a number of financial investments. This is the preferred loan for real estate developers and house flippers, but it is gaining popularity in smaller circles too.
Let’s discuss more about hard money loans and who is funding these type of short-term lending instruments.
Who Funds Hard Money Loans?
Hard money is unique because it is funded by private investors. Instead of going to the neighborhood bank, private lenders fund your request. These lenders aren’t typically affiliated with any mainstream bank, and have private reservoirs of funds. Because the bank is removed from the equation, the terms of the loan will be determined by these private investors. Instead of leaving their cash in the bank to grow at one percent a year, private lenders give it as “hard money,” in order to get a more significant ROI. Hypothethically – anyone can be a hard money lender. Traditional lenders like banks have immense red-tape and have immense protocols to follow. In contrast, private money lenders are flexible.
What Do hard money lenders Care About
hard money lenders care A LOT about the value of the property. It’s the first thing they’ll ask. The second question they’ll ask is how much money you want to borrow, relative to the overall value of the property. The third question they’ll ask is – what’s your plan? How are you going to sell the property and/or repay the loan. The key to getting a fast answer is having the answer to these three main questions.
Criteria To Get Approval for Hard Money Loans
Whether you are looking to renovate a property to sell or are flipping a house in a month, hard money lenders are looking at how likely the chances are your project will succeed. In addition, hard money lenders look at the value of the property – when assessing whether they can recoup their investment or not. It doesn’t matter what project you have lined up and the need for the cash, getting approval for a hard money loan is not based on your creditworthiness. The hard money lender looks at the value of the property itself and considers the LTV.
The Cons of Hard Money Loans
Although hard money loans aren’t a perfect lending solution for those in need of quick cash, it is fast and convenient. That being said, there is a price to pay for that convenience, and it comes in the way of a slightly higher interest rate. Although higher than a conventional loan, the money can be paid back long before a local bank even decides if the borrower is worthy. The terms of the hard money loan are shorter because these private investors want to see a fast return.
The Pros of the Hard Money Loans
The benefits of a hard money loan are numerous. Not dealing with the endless hoops to jump through at the bank is usually enough, but borrowers love the convenience of these type loans. Instead of waiting months for the bank to fund a traditional loan, investors provide funding for hard money loans in weeks. That can be huge when timelines for projects come into play. Another benefit of a hard money loan is the flexibility of the terms. Private lenders are more likely to negotiate and allow wiggle room for the borrower, tailoring the repayment schedule to their needs.
The one thing these investors are really concerned about is the collateral, and that is usually the property itself. Hard money lenders often allow a bit of leeway with the collateral too, attaching unique terms you couldn’t find in a traditional loan. If the lender feels the property value is overstated, they may simply ask the borrower to secure their residential property or retirement account as part of the collateral.
Bottom Line With Hard Money Loans
When you need capital in a pinch and don’t have the time or patience to go through endless hoops at the local bank, a hard money loan may be the perfect fit.
About Delancey Street
Delancey Street is a premier hard money lender based out of NYC and Los Angeles. We fund residential and commercial hard money deals all over the USA. We’re fast, and use artificial intelligence to help cut down on delays when handling new deals. Our promise is transparency, and the fact we’ll treat you like a partner.