Did you find an amazing real estate deal?
It’s the perfect property at a great price. With a little work, you could sell it in a few months for a nice profit.
You’re pre-approved for a loan and go rushing straight to the bank. Then you find out that the actual loan process will take a month or more to complete. That amazing real estate will already be gone by then.
What do you do?
You should take a look at getting a hard money loan. It may be exactly what you need to take advantage of that amazing deal. Keep reading to find out the benefits of a hard money loan.
Hard Money Loans Are Speedy
One of the biggest advantages to taking out a hard money loan is speed. Banks typically take a long time to approve loans. You can plan to wait at least a month or so. With a hard money loan, you could have the money in hand in a couple of days.
The reason for this is that hard money lenders don’t have to do as much research. With a traditional loan, the bank will review your application and do a credit check on you.
The only guarantee they have that you’ll pay is to look at your history. That’s not much of a guarantee. They’ll need time to look at your income, debt-to-income ratio, and other factors to make a decision.
With a hard money loan, you are offering up a piece of collateral. If you don’t pay, the lender gets a piece of real estate. They can recuperate their investment by selling that piece of property.
This is super important in the real estate market. The best properties sell quickly so you don’t have time to wait around for financing.
If you like buying and selling real estate, set up a relationship with a hard money lender. Once that’s in place you can close on real estate deals in a flash.
No more missing out on a great property because someone else could close faster. Now you’ll be the person closing before everyone else.
In general, it is also easier to get approval for a hard money loan. With a virtually guaranteed investment, lenders don’t dig as much into your background. They don’t need to because their guarantee lies elsewhere.
Even if your credit score isn’t a great one, it doesn’t matter quite as much. The lender is more concerned with the value of the property rather than your history.
You could even have a foreclosure on your record, and it may not matter much to them. Of course, you can’t be a total flake. Most lenders will at least take a look at your finances to see how responsible you are.
After all, they are considering handing over a rather large sum of money to you. This money often comes from other investors. So the lender has a responsibility to invest the money wisely as well.
Fewer Requirements to Fulfill
Banks often have a lengthy list of requirements. They typically will not issue you a loan if you fail to fulfill even one of these requirements.
These can be income levels or history, credit score, equity levels, age requirements, and more. The list can be long and difficult to fulfill for all the but the best applicants. Banks often turn down loans because the applicant didn’t quite meet their requirements.
Hard money lenders tend to have fewer requirements. Moreover, the ones they do have are easier to fulfill.
Usually, you only need an asset with enough value to cover the amount you’re asking for. They may also require that you have at least a 20% equity stake in it.
To issue a loan, most banks require that you have at least 20% of your own money to put down. They will only supply you with 80% of the property’s value (or less). That means they have an 80% loan-to-value ratio.
If you default on your loan, they will take possession of the property. They want to ensure that they can sell it for enough to recoup their investment.
Hard money lenders tend to have a lower loan-to-value ratio. They commonly keep their ratios between 50-70%.
At first glance, that sounds like a bad thing. That means that you have to come up with more upfront capital, right?
There are a few different reasons that people apply for a hard money loan. One of the most common is people that are buying a property to fix it up and sell it. This is because hard money loans are expensive and don’t make sense for long-term loans.
Therefore hard money lenders are expecting you to increase the property’s value. They tend to base the LTV on the property’s value after repairs have been made.
Flexibility With Repayment
When you take a loan out from a bank they generally have their terms that you have to agree to. That often doesn’t give you much flexibility or leeway in how you repay the loan.
Hard money lenders are often willing to sit down and discuss repayment options. You’ll still have to repay on time, of course, but you can do it on your terms.
One of the other advantages is that hard money lenders don’t charge prepayment fees. Often, banks will charge a penalty if you want to pay your loan off faster or early.
With most private lenders, you don’t have to worry about that. Pay off your loan early with a little extra each month. Or drop a lump sum on that puppy to get out from under it fast. You won’t be penalized for doing it.
Find a Hard Money Loan
Now that you know the benefits of a hard money loan, what do you think? Is it a good option for you? Feel free to contact us with any questions.
We can help you decide if it’s a good option for you. Plus, we can show you what you qualify for.