Advantages to Using Hard Money Lenders
Most investors have first-hand experience with understanding the difficulty of obtaining real estate investor loans in today’s market. When the market was hot several years ago, these loans were a breeze to obtain, even requiring minimal paperwork. Today, with the financial climate changing, the government has enacted new laws and regulations that have made it difficult for banks to loan to investors without substantial paperwork and near-perfect credit.
One of the benefits of using a hard money lender is that investors are not subject to stringent government bank regulations. Generally, private lenders do not require perfect credit history and have the ability to provide funding faster than banks. This is beneficial for investors that are looking for foreclosures or estate sales, especially real estate development loans or apartment building loans. These types of real estate properties often require developers to act fast – often within 30 to 60 days – and hard money lenders can provide these funds in as few as two weeks.
Additional benefits of using hard money lenders includes the following:
• Many government-regulated banks will not fund rehabilitation projects, which means that foreclosures and development projects immediately do not qualify for traditional bank loans.
• Banks require substantial down payments for projects, often exceeding 20%. Fortunately, many hard money lenders will accept less money for down payments, which frees up valuable funds for developers to have cash on hand for project development costs.
• Most traditional lenders charge prepayment penalties to pay off development loans early. These fees can often be significant, rapidly adding up and decreasing developers’ profits. Reputable hard money lenders do not charge prepayment penalties, as they understand that hard money loans are designed for developers, and the faster they succeed in finishing projects, the quicker they can pay off their loans.
• Generally, hard money lenders work nearly exclusively with real estate investors, which gives them an inside edge in understanding details about real estate development. Traditional banks work with several different types of loans, ranging from commercial to personal and often do not have specific programs tailored towards real estate investors. Private lenders can design special programs that fit investors’ needs, with specific terms and options that work just for them. Working with a specialist helps provide real estate investors with the knowledgeable comfort and warmth needed to help investors’ feel comfortable working with knowledgeable teams to complete their development transactions.