Why Use Residential Hard Money Loans?
When bad credit and other traditional mortgage lenders stand in the way of acquiring your dream house, loans from investors or individual lenders, primarily based on property as collateral, can be used to finance the dream of homeownership. One-third of Americans have a low credit score. This means that one in three people cannot get a mortgage loan. Qualified borrowers often struggle to secure loans that allow them to finance their residential property.
When traditional lender won’t budge, and the loan needs to happen fast, hard loans might be the only viable option. Hard money lender Dallas can help you with your hard money loans. What are hard money loans and how do they compare to the traditional loans?
What are Hard Loans?
A hard loan is a short term loan offered against real estate as collateral. As opposed to banks and credit unions they are funded by private investors. Like most loans, mortgage loans require good credit score as proof of ability to repay. Conventional lenders are usually interested in the borrower’s income and their ability to pay the loan. If your borrowing and payment history are satisfactory, then you are likely to be approved for a loan.
Nevertheless, even with the right borrowing history, good credit score, and satisfactory income, getting these traditional loans can be excruciatingly slow. If negative elements turn up in your credit report, then the process will be longer, or the loan request turned down.
Hard loans take a different approach and often care less about your ability to repay. They lend to borrowers based on collateral. The short term loans usually run for 12 months and can be extended to 2-5 years. Monthly payments with an interest or interest with a balloon payment at the end of the term are paid to settle the loan. The amount lent is calculated from the value of the property in question (usually 50-70% the value of the property). In the event that the borrower is unable to secure conventional financing due to short sale or foreclosure, hard money lenders can come through provided the borrower has sufficient equity on the property. In a situation where banks are like to say no, hard money lenders say yes.
Why Use Hard Money Loans
Hard money loans last for one to five years all for a good reason. The interest rates are generally higher than those of conventional loans. Extending the loan repayment period would result in unpractical interest accumulation. If hard money loans are more expensive why do people use them?
Hard money has the major advantage of helping put people who cannot access conventional loans when they need cash quickly. Private money lender Wildcat Lending has helped break down the main benefits of using residential hard money loans.
Hard money loans terms of the agreement are generally more flexible than conventional loans. The lenders don’t use the normal underwriting process. Instead, they analyze each situation separately to come up with a deal. This allows the borrowers to tweak certain things such as the repayment schedule. Unlike conventional loans where the borrowers approach large institutions, the hard money lenders might be willing to negotiate terms of the agreement.
Lenders are often focused on the collateral and less concerned with your current financial position. Therefore, these deals are closed faster than alternative loans. Lenders prefer getting their money back with interest without having to go deeper into the details such as credit repayment history and income. Moreover, once you have established a relationship with the lender, the process can move quickly allowing you to get deals that other lender can’t offer.
Collateral is an essential factor for any hard money loan deal. If you are purchasing a property, the lender can only offer an equivalent amount. If you make an offer to put property you own as collateral, comprehensive details about the value of the property must be provided. If you have negative credit reports or had a foreclosure in the past, the lender might overlook such situations.
While some lenders choose to ignore credit history, they might inquire about your current personal financial position. Most lenders keep their LTV ratios (loan to value ratios) relatively low. The maximum LTV ratios range from 50 to 70 percent; this means you need assets to qualify for a hard loan. This also allows the lender to have a good shot at reimbursing his money when they sell the property in the market.
Property for Hard Money Loans
Borrowers can get hard loans with any property as collateral including multifamily residential, industrial, commercial land, and single family residential. In some cases, hard money lenders may specialize in a specific property; for instance, a residential hard money lender cannot handle land hard money loans. Most hard money lenders prefer using a particular niche which they are comfortable under. The lenders offer their specific services upfront and should, therefore, be easy to deduce if they suit your requirements.
When are Hard Loans used?
Hard loans do not apply to all types of deals. When buying property, good income, good credit history, and no issues such as foreclosure and short sale, conventional loan acquisition is a viable alternative. When the borrower has the time to undergo the lengthy approval procedure, borrowers can consider using traditional bank loans. Hard money loans are practical for situations such as
- Fix and Flips
- Construction loans
- Land loans
- When real estate requires you act quick
- When credit issues arise in conventional procedures
Hard loans can be used for a wide range of situations. While the residual belief that only people with low credit scores use these types of loans are common, hard loans are lifeboats for people with damaged credit records. Some of the standard applications of hard loans include:
- Buyers have a mortgage tied to the property
- The borrower needs to finance another real estate purchase quickly
- The buyer wants to turn a non-conventional property into residential premises
- The borrower does not meet the required FHA lenders requirements
- The borrower is unwilling or unable to finance fix and flip loans
Finding a Good Hard Money Lender
There are several ways you can use to get a reputable hard money lender, private money lenders like Wildcat lending can guide you through the process. One easy way is using the internet, for instance, searching for hard money lenders Dallas. To begin with, this will provide a scope of lenders and their contact information. You can also find out more on private money lender by contacting Wildcat lending.
With the knowledge about hard money lending, you can make confidently fund your future real estate undertakings.