Some Essential Basics of Hard Money Loans

Written by Posted On Thursday, 25 August 2016 08:01

What is hard money?

Investing in a real estate market is a great way to increase your wealth power and it also add a diversity in your portfolio. While Real Estate Investment Trusts (REITs) presents some investing options in a passive manner, some owners prefer to purchase property directly. While some investors are not comfortable with the option of partying with an amount of cash to purchase an asset, another approach of hard money loan is always available—an asset-based loan financing approach in which the borrower receives funds to purchase a property. These loans are issued by private money lenders or companies rather than core financial institutions such as banks.

How hard money financing work?

Real estate investors use these loans to finance an investment project. Property developers use these loans to renovate or develop a property and then sell it at a profit.

Normally buyers find it difficult to approve loans from banks. In case of start-ups, it become increasingly difficult as banks do not wish to take risk on your credit scores and repayment capacity. Unlike traditional bank loans, hard money financing is easy and does not depend on the borrower’s creditworthiness. Instead the lenders evaluate the value of property the borrower wishes to buy and decide whether to provide loan or not. More specifically, lenders estimate the after repair value (ARV) that determines the worth of property once the renovation or development stage is done. Also these lenders tend to look at your business cash flow and monthly bank statements before releasing you the loan.

3 top benefits of hard money loans

1.Convenient funding

Applying for a mortgage loan is time-consuming, especially since the enactment of new regulations regarding mortgage lending by Dodd-Frank Act. It could take several months for the borrower to get the loan approval, putting the potential investment opportunity at risk of losing. In comparison, a hard money financing deal could be closed in a matter of weeks. This is especially useful when you are part of a large-scale development project and couldn’t afford even minor slips in timeline of its completion.

2.Flexible terms

The real estate market is an ever changing play field where your business needs to keep pace in order for survival and growth. Traditional financing institutions aren’t flexible enough and rarely deviates from their one-size-fits-all approach to loan financing requests. On the other hand, private or hard money lenders can customize repayment and collateral release terms in a way that proves beneficial for both parties.

3.No prepayment penalties

For the betterment of business, even the best constructed plans change in future. If your business runs well, the last thing you want is to get penalized for your own success. Financial institutions like banks can charge you significant prepayment penalties in case circumstances change such as a loan is fully or partially paid before the actual due date. Whereas, private investors are fully participative in your success and normally structure loan agreements without adding the prepayment charges clause.

What is hard money?

Investing in a real estate market is a great way to increase your wealth power and it also add a diversity in your portfolio. While Real Estate Investment Trusts (REITs) presents some investing options in a passive manner, some owners prefer to purchase property directly. While some investors are not comfortable with the option of partying with an amount of cash to purchase an asset, another approach of hard money loan is always available—an asset-based loan financing approach in which the borrower receives funds to purchase a property. These loans are issued by private money lenders or companies rather than core financial institutions such as banks.

How hard money financing work?

Real estate investors use these loans to finance an investment project. Property developers use these loans to renovate or develop a property and then sell it at a profit.

Normally buyers find it difficult to approve loans from banks. In case of start-ups, it become increasingly difficult as banks do not wish to take risk on your credit scores and repayment capacity. Unlike traditional bank loans, hard money financing is easy and does not depend on the borrower’s creditworthiness. Instead the lenders evaluate the value of property the borrower wishes to buy and decide whether to provide loan or not. More specifically, lenders estimate the after repair value (ARV) that determines the worth of property once the renovation or development stage is done. Also these lenders tend to look at your business cash flow and monthly bank statements before releasing you the loan.

3 top benefits of hard money loans

1.       Convenient funding

Applying for a mortgage loan is time-consuming, especially since the enactment of new regulations regarding mortgage lending by Dodd-Frank Act. It could take several months for the borrower to get the loan approval, putting the potential investment opportunity at risk of losing. In comparison, a hard money financing deal could be closed in a matter of weeks. This is especially useful when you are part of a large-scale development project and couldn’t afford even minor slips in timeline of its completion.

2.       Flexible terms

The real estate market is an ever changing play field where your business needs to keep pace in order for survival and growth. Traditional financing institutions aren’t flexible enough and rarely deviates from their one-size-fits-all approach to loan financing requests. On the other hand, private or hard money lenders can customize repayment and collateral release terms in a way that proves beneficial for both parties.

3.       No prepayment penalties

For the betterment of business, even the best constructed plans change in future. If your business runs well, the last thing you want is to get penalized for your own success. Financial institutions like banks can charge you significant prepayment penalties in case circumstances change such as a loan is fully or partially paid before the actual due date. Whereas, private investors are fully participative in your success and normally structure loan agreements without adding the prepayment charges clause.

Visit www.4smartmoney.com and find the best Hard Money Loans Houston Texas

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