What comes to mind when you speak of “ “hard money loan” (or “private money loan”)? Do you tend to associate it with shady lenders that operate out of dark corners and charge exorbitant interest rates? Although there have been a few bad apples in the past that tainted the hard money lending business due to very risky loans to borrowers who have been used to real estate serving as collateral and then intending to foreclose on the properties. Fortunately, these sorts of hard money lenders no longer exist in today’s market, but some residual stigma still exists for certain real estate investors who have not lately used the services of respectable Palm Beach hard money loans.
Defining Hard Money Loans
A hard money loan is a short-term real estate secured loan and is usually financed by individual investors, or a pool of investors, rather than by traditional financial institutions like banks or credit unions. The loan periods are typically 12 months, however, they can be stretched to 2-5 years. The loan involves monthly payments of either interest alone or interest plus a portion of the debt, with a lump sum payment at the term’s conclusion.
The amount of money that hard money lenders can lend to a borrower is mostly determined by the value of the underlying property. The collateral may be an existing property that the borrower intends to utilize as security or it may be a new property that the borrower is purchasing.
Even though these hard money lenders still put some importance on the borrower’s credit record, it is really the property’s worth of the borrower that they are more concerned about. Borrowers who are unable to acquire conventional financing as a result of a fresh foreclosure or short sale may still qualify for a hard money loan when they have adequate equity in the collateral property. When banks say “No,” hard money lenders might continue to say “Yes”.
Types of Real Estate Suitable for Hard Money Loans
Borrowers can obtain a hard money loan on virtually any sort of property, such as single-family housing, multi-family housing, commercial, land, as well as industrial.
Certain hard money lenders might concentrate on a certain sort of property, such as residential, and therefore be unable to provide land loans due to a lack of knowledge in this sector. Usually, hard money lenders specialize in a certain type of loan which is why it is essential that you inquire upfront about the kind of loans they are interested in and capable of making.
Due to the additional laws and regulations, numerous hard money creditors will not finance owner-occupied residential housing, however, there are those that are ready to assist the borrower to navigate the paperwork. Most hard money creditors will make loans in the first place, but fewer will make loans in the second position attributable to the lender’s higher risk.
What Kinds of Deals Are Suitable for Hard Money Loans?
Hard money loans really aren’t suitable for all transactions. Traditional financing through a bank is one of the best options when you have strong credit, a stable income history, and if you have no problems like a short sale or foreclosure, but, whenever banks are not one of your options because you will be needing the loan in a short period of time, getting hard money is a viable option for funding.
Hard money loans are appropriate for a variety of scenarios, including the following:
- Repairs and Flips
- Loans for Land
- Construction Financing
- When the Buyer’s credit is in jeopardy.
- Whenever a real estate entrepreneur is pressed for time.
Who Can Be Qualified to Make Hard Money Loans?
Property investors utilize hard money for a variety of reasons. The primary reason is the hard money creditor’s ability to finance the loan fast. Hard money loans may often be granted within a week. As compared to getting finance from a bank which usually takes about 30 to 45 days, acquiring funds from hard money loan applications can just take a day or two, and there are even some rare instances wherein the loan is granted on the same day. Best of luck getting back from your financial institution in the same week regarding loan approval.
A major benefit for a property investor is the possibility to get the money much more quickly than a bank loan. Particularly whenever the real estate investor is bidding on a property with several competing offers, a rapid closure with a hard money loan can capture the seller’s attention and differentiate their offer from the rest of the bidders offering sluggish conventional financing.
One other reason a borrower may select a hard money loan is that they have been denied a regular loan by the banks because life does not always go according to plan. Short sales, foreclosures, and credit problems all occur. Another critical piece of information that banks want is income history. Though a borrower has recently begun a new work, the bank may refuse the loan application owing to an inadequate revenue record, even though the borrower has a good salary.
Locating a Palm Beach Hard Money Lender to Deal With
There are several methods for locating a reliable hard money lender. One simple approach to locate a Palm Beach hard money loan provider is to type your location + “hard money lenders” into Google. There will be both individual firms and listings of hard money creditors collected by others in the search results. This will offer a sufficient number of lenders to call and evaluate.
Another method of locating a hard money lender is to attend a meeting of your local property investment group. These clubs gather in the majority of cities and are frequently well-attended by hard money lenders seeking to network with prospective borrowers. However, when there are no hard money lenders in attendance, you can still inquire of several other property investors if they can provide you with a recommendation of a reliable and reputable hard money lender. You can also look for hard money lender recommendations from real estate brokers, traditional mortgage brokers, along other real estate experts, so you must utilize your existing network to determine who comes highly recommended.
After compiling a list of a few lenders, it’s time to begin contacting them and identifying the most suitable creditor to finance your next business.