Traditional Loans compared to fast loans
Traditional loans take time. It’s impossible to get a traditional loan approved in 3-12 days. Most traditional lenders take 1-3 months to approve your loan. Because loans secured by real estate investor come with different guidelines. For example, a credit score doesn’t matter in a loan. The lender only looks at your collateral. Traditional lenders will never give a loan based on collateral only. In contrast, lenders will. Traditional lenders care about your credit – whereas lenders do not.
The funds in a hard money loan come from private lenders who are also interested in lending their money for interest. lenders charge a higher than average interest rate – compared to traditional institutions. The source of the funds can come from an individual, or a pool of investors, who invest in your loan. Often, many will pool their money and work with a commercial lending asset manager. Or through a broker who facilitates the loan.
Other advantages of Hard money loan
As a result, a hard money loan is also used most times by real estate investors. Whose interest is in conducting transactions and need a source of money to leverage. Banks tend to not loan to investors because banks want to make sure they’ll get paid back. Banks look at things like collateral, personal finances, and your credit score. lenders will often look at the LTV – loan to value – ratio, when evaluating your deal. Lenders prefer a low LTV – no more than 70-80%.
lenders are useful when the time is of the essence. can help you capitalize on critical opportunities. With fast loans, with no credit/income verification checks. If you can’t get funding through conventional means – then consider speaking to a lender. It’s a great option for short term financing.
Usually, it can take 5-10 days to get funding for a hard money loan. Traditional banks take anywhere from 4-8 weeks. Lenders like us can fund faster because our loans are direct funded. That means less paperwork and less red tape involved in funding the loan. Moreover, you can get a loan even if you have bad credit! Credit is not an issue. You should have a plan on how you will repay the loan. Our funding criteria based on the equity in the property and your payment repayment plan. We make loans to foreign nationals and entities – who have no credit. We’ll ask you for an appraisal to help us understand the loan to value ratio.
When to consider a hard money loan
Borrowers should consider a hard money loan. Instead of a traditional lender, when you need quick access. Gaining access to this capital comes at a higher interest rate. Because the investor wants a higher ROI than investing it into bonds & savings account. Moreover, the investor is aware a traditional lender won’t lend to you. And thus, he/she is taking on extra risk by investing in your project. Only turn to a lender if you REALLY need this money.
While you can go to a traditional lender instead of a lender. In most cases if you’re looking for a loan it’s because you have a questionable financial history. Banks look for collateral, good credit, and cash flow. Moreover banks will make you go through a rigorous application process. And also take time to make a decision.
Understanding Hard Money Loans
Life is simpler if you can get a mortgage for your case. Unfortunately, sometimes it’s not that easy. Sometimes you need money ASAP for a real estate investor sale. If you don’t qualify for a conventional best mortgage, then we can help you. Loans are one of many solutions, available for unconventional borrowers. Are they right for you? If not, what’s a better option? Keep reading, and we’ll educate you on loans, and how to make an informed decision.
These loans are a type of real estate investor loan. They are also based on the value of the collateral(the property itself). Rather than your capability to repay the loan. Here are some types of loans:
BRIDGE LOANS. Are also used to allow someone to buy property quicker, with the goal of reselling it, or refinancing it. These allow someone to buy a new property ASAP.
FIX AND FLIP LOANS. These types of loans allow someone to buy a rehab property, and then if it up faster so it can be resold later.
OWNER OCCUPIED LOANS. These loans allow consumers who don’t qualify for other types of financing to get a property for themselves.
CONSTRUCTION LOANS. These loans allow developers to get started on new construction projects. With the intent of refinancing, or selling it faster.
Why Would a Hard Money Loan Be Denied?
Hard money lenders are also considered flexible compared to traditional lenders. While it’s true that loans have less stringent requirements versus traditional loans. You could still face some push-back. Lenders will look at you, and your experience, and your business plan – very close. Here are some things that might cause a lender to reject your loan request.
You Aren’t Putting Down Enough Equity
Applicants who plan on buying a property, or fixing and flipping, need to realize that hard money lenders want to see you have “skin in the game.” lenders will check your application, and assess the chances of you succeeding. They look to see how much equity you’re putting into the project. Damex Trading looks to see how much of a down payment you’re putting down, and how much risk you’re taking. Our ideal partner has as much risk as we do. Lenders usually look to see if the applicant has enough cash to cover the down payment on the investment property. It’s important that you be able to show that you’ll be able to complete the project – financial speaking.
Keep in mind that most lenders will only approve an application. Where the real estate investor is taking some risk or liability on his or her shoulders as well. If you expect a lender to take a 90-100% risk then it’s likely the loan will get denied. It’s important you have enough cash to cover the down payment, and other smaller bills that might arise in the future. Be prepared to show some proof of cash, so the lender understands you have a plan and won’t abandon the project.
Business Plan for hard money loans
It’s important you show to the lender you have plan in place. lenders want to make sure they’ll get repaid. You have to show your plan, and how you’ll repay the loan in the future. When you accept a loan, you’re agreeing to a loan term – which means the loan has to be repaid within that period of time. If you don’t repay it, you lose ownership of the property to the lenders.
Many lenders will refuse to lend you if you don’t have an exit strategy. It helps if you have cash reserves, or assets, in place to help cover the balloon payment in the event your plan fails. Most lenders prefer not to seize your collateral and sell it to settle the debt. They would rather get paid, and want to make sure the real estate investor they are working with is also prepared to fulfill his obligations.How much do lenders Usually charge?
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. Besides, 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 also approved. You’ve already lost the property since someone paid cash for it. If you have a lender on 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 and hard money 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 lender. While the interest rates for a 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 extra funding. Some traditional lenders will refuse because the project isn’t completed. While this can be devastating, a lender might be willing to lend you the funds. lenders are happy to give money to bridge the gap in funding and can work with you to fill that void.
