Hard money loans can be used to fund transactions whenever a quick turnaround is necessary like a fix-and-flip purchase. Conventional loans are generally found in situations where in fact the property will be held for a long-time. Quicker turnaround is possible with hard money loans since there is less bureaucracy involved. These loans can be approved and closed in just a few days, sometimes as little as 72 hours.
Property purchases made out of hard money loans include single-family residential houses, multi-unit dwellings plus some commercial properties. Most hard money lenders are prepared to finance the purchase of both commercial and residential properties, but avoid loans involving owner-occupied residences due to more regulation on these transactions.
Interest levels on a hard money loan vary by lender and by the borrower’s specific circumstances. At the moment, rates generally get started at approximately 10% and rise to the mid-teens. Some lenders allow interest payments to be deferred until payoff. This can benefit rehabbers by eliminating monthly payments during the period when capital is required to renovate the house.
The duration of a difficult money loan can range between a couple of months to 2-3 years, depending on the type of property and the borrower’s specific needs. Loans for renovating single-family homes generally range from six months to 1 year while loans for commercial properties like a shopping mall can have a two-to-three-year duration. Interest rates are usually higher on longer-term loans. To close a hard money loan, the lender may necessitate the borrower to obtain a title policy, insurance, and an appraisal of the house. Most hard money loans have origination points, which can range between two to 10 points, and require a personal guarantee from the borrower and an initial lien positioning.
While hard money loans for single-family homes are usually fixed rate, a floating rate is more prevalent for commercial properties because of the longer maturity. Loans are often structured with balloon payments although flexible payment terms such as an interest-only option are occasionally available. Find out more about the Hard Money Lenders Florida
In comparison to traditional bank financing, the main advantages of a hard money loan will be the simpler application process, faster turnaround, and less scrutiny of the borrower’s personal finances. The main disadvantages of the loans are higher interest levels and origination fees. Due to the bigger costs involved, hard money loans maximize sense for borrowers when a quick closing is mandatory, or when there can be an exceptional investment opportunity, but limited access to traditional financing.
There are huge selections of companies that produce hard money loans. Here are six tips for deciding on the best lender:
- Choose a firm that specializes in hard money lending. The origination, servicing and compliance requirements for hard money loans are complex and need the expertise of the dedicated hard money specialist. Furthermore, an experienced hard money lender knows how to structure loans to facilitate a good outcome for every one of the involved parties.
- Focus your search locally. Many hard money lenders want to inspect the property that will secure the loan in-person so your most suitable choice for finding a lender may involve searching locally. There are some hard money lenders that operate nationwide, but these companies have a tendency to offer less overall flexibility when compared to a local lender.
- Insist on a high amount of transparency. All the involved parties must have usage of the loan data through the origination process and the hard money lender should abide by published loan program guidelines. Be skeptical of lenders who advertise teaser rates that should never be available in real lending situations.
- Look for licensing. The very best hard money lenders are qualified by their state dept. Of property and registered with organizations such as the Nationwide Mortgage Licensing System and Registry. It’s also advisable to confirm that the lending company has a valid Property Broker License and check whether any complaints have been filed against that license. Also go to the lender’s website and profile on Linked In. The image conveyed by the lender’s on-line existence should be steady and professional.
- Determine your hard money needs. Many loan types are for sale to hard money financing. You will discover hard money lenders who focus on foreclosure rescues, investor financing and commercial properties. When presenting a project to a lender, anticipate supplying the address of the house, deadlines critical to the transaction including the closing date, the price of the house, the renovation budget and the projected post-renovation price tag.
- Understand the significance of the loan-to-value ratio. Unlike conventional lenders, hard money lenders use the worthiness of the house “if sold today” as collateral for the loan, Hard money lenders usually have a more conservative method of valuation than the standard appraisal method used by large banks. The focus for hard money lenders is on asset value and the loan-to-value ratio. Most hard money lenders won’t lend more than 70% of the home’s value, whereas banks may lend up to 80% plus some government-backed loans may exceed 90%.
Hard money lenders change from each other in their loan-to-value guidelines, the type of real estate they finance, minimum and maximum loan size, the geographic region they serve, and in the amount of service provided. An excellent starting place for finding a difficult money lender is to get referrals from local title companies, mortgage providers and realtors, since these lenders get excited about home sales and buy transactions on a daily basis. Another strategy is to require input from local real estate investor groups. Investors should plan on reaching out in advance to some lenders to be able to start building relationships that will facilitate quick funding of projects as opportunities arise.