Private lenders lend hard money loans in exchange for property that does not have an owner occupying it.
The maximum period for clearing is 36 months, with the minimum period being six months. They have a higher interest rate than regular bank loans.
Hard money loans are sanctioned after evaluation of the collateral pledged. After the lender deems the collateral creditworthy, only then is a hard money loan approved.
People opt for hard money loans because they come through sooner than traditional bank loans after they get approved. The maximum time for processing a loan request is between two to four weeks.
How are Hard Money Loans different from traditional bank loans?
The primary difference between the two is the lender. Private lenders always sanction hard money loans. They could be one person or a group of investors.
Hard money loans are not regulated like consumer mortgages are as the collateral is a non-owner occupied property. This means that lenders in the hard money business are excused for higher interest and charges and can easily get away with it. This is not allowed with traditional bank loans.
Credit unions and financial corporations regulate bank loans. At the same time, hard money lenders do not have to face any such restrictions.
Hard money borrowers
Hard money lenders are looking for people who can clear their loans in a short period. They look for the same in businesses.
Fix and Flip estates
Hard money lenders lend out money to house flippers and at times pay for the house repairs. Moneylenders find it ideal for lending money to house flippers as they can clear their debts within six months.
When the lenders pay for the repairs, it protects them from exposure as they are parting with their money in portions. Lending money for the repairs allows the lenders to keep an eye on the project and ensure everything is running smoothly. This helps them ascertain that their debts are paid. When they are financing the project, they need not worry about the borrower running out of funds because they can keep an eye on the proceedings.
Multifamily
Investors usually look forward to investing in multifamily properties, and they do not always have the time that traditional money lending processes demand.
They might also be interested in a multifamily property that has to go through several repairs. Banks might not agree to loan the money under such circumstances. This is where going for hard money loans is more convenient for these investors.
Hard money loans allow them to get the repairs done and lease out the estate.
Rentals
Hard money lenders often lend money to real estate investors who wish to get a loan for a rental property. They need to close such deals quickly and therefore do not have the time to go through traditional bank loans owing to the time it takes. Such rental properties might also need repairs. Therefore, hard money loans are the perfect option for such real estate investors.
Commercial real estate might also have investors who need loans to finance vacant properties which banks would never indulge in. This is where hard money loans come in handy.
Final thoughts
Common fees for hard money loans include an origination fee, broker fee, application fee, underwriting fee, doc prep fee, processing fee, and funding fee. This is a lot, but hard money loans are your best bet if you are looking for a large sum of money quickly based on a collateral asset.
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