Hard money loans give borrowers seeking leverage an alternative to the traditional lending sources, whether they need quick financing, want to avoid the onerous and time consuming bank underwriting, or are looking for a collateral based alternative to traditional lending sources.
History has painted hard money lenders as lenders of last resort or loan sharks, however the industry has matured over time and there are many professional and reputable hard money lending companies who are focused on helping real estate owners finance their properties.
How can you as a real estate buyer know when a hard money loan is the best option? Following are a couple of questions to consider when determining which type of real estate lender will best help you accomplish your financing needs.
How is My Credit?
Traditional real estate lenders often have stringent credit score standards when considering whether or not to approve a real estate loan. Hard money lenders will still check your credit history, but the credit score itself does not disqualify an individual from obtaining approval for a hard money loan.
Hard money lenders are more concerned with your ability to repay the loan than with your credit score. If you’ve demonstrated the ability to pay your debts in the past, even if you have paid late or had a foreclosure or bankruptcy, a hard money lender won’t automatically disqualify you but will instead want to understand the circumstances that led to the lower credit score. This allows for more flexibility in the hard money lenders approval process.
How Much Money do I Need?
Because hard money lenders are private financiers, they aren’t required to abide by federal lending guidelines and thus have more flexibility than a traditional lender where loan amounts are concerned. Whereas a traditional lending source may have debt-to-income ratios or other underwriting ratios, a hard money lender can consider each project on a case-by-case basis with primary emphasis on the collateral being offered and not the income it generates.
Where there is sufficient collateral, some hard money lenders can finance 100% of the cost of an asset. This flexibility in lending guidelines allows a great number of real estate owners to obtain financing for their real estate projects.
How Fast do I Need the Money?
Hard money lenders can often close a loan and distribute funding within days of submission of a loan application. If you are negotiating a real estate transaction and don’t have 90 days or more to wait for traditional bank approval, a hard money loan may be your best option.
What Term Loan do I Need?
Hard money lenders specialize in providing short-term loans for real estate transactions, from as little as 3 months to as long as 24 months depending on the borrower’s needs. Often borrowers need a short-term loan to give them time to improve their credit score, to give a traditional lender time to complete their underwriting, or to allow them time to lease the newly acquired asset prior to sale or seeking permanent financing. Under each of these circumstances a hard money loan can assist.
What Type of Real Estate Do I Wish to Purchase?
Commercial hard money lenders are able to finance large real estate projects such as commercial buildings, multi-unit housing developments, construction loans, or land. Hard money lending has gained a respected place among the many options for real estate financing in today’s complex world. If you’re interested in learning more about how hard money lending can help you finance your next real estate project, the professionals at INCA Capital, the premier hard money lending company, can help you quickly and transparently with your financing needs.