The Ins and Outs of Hard Money Lending
Hard money lenders, also known as direct lenders, are becoming more popular as an alternative for financing. Investors are particularly interested in these types of lenders when trying to do everything from flipping houses to renovate commercial buildings and apartments.
What makes hard money lenders more appealing than a traditional mortgage lender?
They focus on the property. When dealing with a direct lender, the credit of the borrower isn’t as much as a focal point as it is with traditional lenders. Direct lenders can use the projected property value as a point of collateral, so even if you have a less than stellar credit score, a hard money lender may still be willing to work with you. It’s good to have a plan for what will become of the property and how you plan to pay off the loan in a shorter amount of time.
They can be faster than a traditional lender. In some areas, real estate is so hot in the spring. If you are not ready with an offer the moment the property hits the market, you may miss out. Direct lenders can work a lot faster than traditional lenders because they don’t require a lot of financial documents and paperwork. Some lenders can secure your financing in as little as a week.
The loans are paid off faster. Traditional mortgages can range anywhere from 15 to 30 years. If you are looking to just update and sell a property, it doesn’t make sense to tie yourself to such a long loan. With hard money loans, they are often for much shorter terms such as 6 months or a year. The property is bought, updated and sold for a profit, so the loan can be paid in full in a shorter time.
They are not just for commercial investors. Homeowners can benefit from hard money lenders as well. If you must relocate quickly, you may not have time to wait for your old residence to sell. With a bridge loan from a hard money lender, you can secure a new home with a down payment and then pay the loan off when you sell the old house without having to wait for it to sell before moving.
The more competition, the lower the rates. While hard money lenders do not have much higher interest rates than traditional lenders, the interest rates will vary from business to business and even from state to state. When there is more competition among lenders in a certain area, one way for them to stay competitive is to offer the lowest interest rate. It pays to shop around when looking for any financing options.