hard money real estate loans

Conventional banks and savings institutions are reluctant to make loans without the full underwriting process required by the FDIC and the other financial regulators. The real estate opportunity is often scooped up by another Buyer before the time required to complete this lengthy process in completed. Banks often require 30-60 days to approve and fund a simple real estate loan and they are reluctant to make loans that do not comply with FNMA, FHA and Freddie Mac requirements. They prefer to make conventional 30 year owner-occupied loans that they can immediately sell in the secondary market. Yes, the interest rates are usually considerably lower than rates charged for private money, but, what good is a low rate loan if it can’t be closed in time to take advantage of the opportunity you are seeking? So, one consideration that favors a Hard Money Loan is the time required to close. We can typically close in five to ten business days.

Second, if you lack the cash needed to acquire, improve or develop a real estate opportunity, another option is to take on a partner. Typically you could expect to give up half or more of the profit to the partner providing the capital. Often too, the capital partner will require a first mortgage position on the property ensuring their investment is paid out prior to any profits split with you, the owner. If this is your only means of obtaining the funds you need and the upside profit you except is great enough, giving up half the ownership and half the profit may be your best choice. However, if you obtained a Hard Money Loan, paying 10-12% interest against 50% of the upside, the Hard Money Loan may be the preferred means of funding your project. You maintain control, 100% ownership, paying interest only on the borrowed funds and keeping all the profits for yourself. Our Hard Money Loan is less expensive than a partner.

Third, some real estate projects are simply too unconventional for most banks and thrifts. Perhaps you need a second mortgage and your security consists of properties in two different states. The banks may not be authorized to engage in lending activities outside their home state and could not make the loan.  Or, perhaps your opportunity does not match up with the equity ratios the bank requires but the upside potential of the project more than makes up for the lower equity at the beginning. In all likelihood, the banks will pass on this type of lending opportunity, but a Hard Money Lender understands this type of opportunity and can better assess the risk and make the loan.

Fourth, often in the past the Borrower may have had an event or two that impacted their credit score- they were caught in the real estate downturn, they were out of work due to industry layoffs, or, perhaps some large medical bills, or a divorce created a cash crunch. For banks, it’s all about credit scores and income and debt ratios. For the Hard Money Lender, the value of the real estate, the viability of the project and their assessment of the character of the Borrower are most important. If you don’t have a high credit score, lots of disposable salaried income and a minimum of existing debt, the Hard Money Loan may be the best means of funding your real estate opportunity.

Source Funding, LLC