We’re all aware of how traditional lending works. You go to the financial institution of your choice and fill out the paperwork, authorizing them to run your credit. This informs them of your income, income stability, credit history, missed and on-time payments, and pretty much everything about you financially. Depending on the details of the loan you are applying for, you then wait anywhere from 30, 60, to 90+ days, and if all goes well, you have the loan funded. There are obvious reasons as to why traditional lending is so popular; i.e. they typically have lower interest rates, are funded by reputable financial institutions, are usually paid back over longer periods of time, allowing for smaller monthly payments, and can help build your credit over time.
But what if you find that key piece of real estate and don’t have time to wait for the bank’s approval process? For example, an amazing opportunity to profit from a fix and flip a property crosses your path, but it’s contingent on a cash-only-sale, realistically not quite within your cash budget? Or, what if your income or credit report is less than ideal and a traditional loan is just not within your reach? Does that mean that you should lose out on what could be an amazing opportunity solely because a traditional loan is not going to work for your current situation? No way!
Hard money loans are an ideal alternative to traditional, soft money loans in situations like these and plenty more. They are funded by private investors rather than large financial institutions. This aspect is the game changer in these two loan types. Private money lending allows the owners of the funds to be personally invested in the decision-making process. Rather than looking at your income or credit history, they look at your assets as a verification of repayment. You will need to have collateral to qualify for this type of loan; typically, at least 60% of the loan to value (LTV) or 40% equity in the property. This ensures if the loan were to default, they will still receive their return on their investment by selling the property, even if the market declines. This aspect also eliminates much of the waiting period that comes with conventional loans. As it is their own, private money that they are lending, they are not as strictly regulated as large financial institutions. And, because they are only interested in your assets, not your credit history, they can typically fund a loan in a mere week or two..
There will be times that a traditional, soft money loan will be your best option. There may be times when a hard money loan is your better choice. And sometimes, when a traditional loan is what you’re wanting, but the time it requires could cost you the sale, a hard loan may be needed as a temporary means to allow you to acquire the property while, at the same time, allowing the bank the necessary time to fund a traditional, soft loan. There are numerous options available. Don’t miss out on a great investment! Know your options and which is best for your specific situation.
Contact our team today to see if a Private Money Loan is right for you and your next opportunity!