For those unfamiliar with hard money lending, discerning who you're dealing with when securing financing can be unclear—knowing the key differences between direct and middleman hard money lenders. Direct hard money lenders are private lenders who invest their funds into loans. These lenders often have flexible loan terms and can be more lenient with their lending criteria than traditional financing institutions.

No Red Tape

If you require a loan promptly, hard money lenders could be the solution. They can make swift decisions without being constrained by banks' protocols and restrictions. Instead of focusing on your credit and income profile, hard money loans San Diego are based on the property's value. However, remember that most hard money lenders charge points upfront, which can be a significant cost ranging from 3 to 6 percent of the loan amount. Overall, hard money loans are an excellent choice for investors who must start projects without delay.

No Broker Fees

Ideally, borrowers should look for a direct hard money lender or someone who operates as one. This way, they avoid paying a loan broker fee and will get their deal funded faster. Direct lenders will have their capital and can make decisions without going through a committee. This makes them much more flexible with their lending criteria. They are more likely to allow higher debt-to-income ratios and credit scores. In addition, they will often require a larger down payment than traditional banks. They may also charge higher interest rates.

Faster Closing

Typically, direct hard money lenders offer faster closing times than their counterparts. This is because no intermediary is involved in the process, streamlining everything. This is especially helpful when you are attempting to purchase a property with multiple bidders and must close fast to beat the competition. Another perk of working with a hard money lender is that they are usually less stringent regarding their underwriting criteria. Hard money lenders prioritize the property's value as collateral over the borrower's credit history and debt-to-income ratio. However, reaching out to a hard money lender may seem daunting for real estate investors. To prevent any costly mistakes in the future, it is essential to ask the right questions.

Higher Interest Rates

Ask your hard money lender about the rates and points they charge and other extra charges such as escrow, notary, and recording fees. Ensure you know about these charges to compare and contrast them with different lenders to get a clear picture of the overall cost. Many private hard money lenders fund and retain their loans on their balance sheets. This allows them to be more flexible than competitors that syndicate, sell or lever their loans. In addition to being more relaxed, many private hard money lenders offer favorable loan terms for real estate investors. For example, they may provide short-term loans and interest-only payments for fix and flip investments. They also tend to limit the loan amount to a percentage of the property's value expected to be realized in a trustee sale. This helps protect them from losing money if the borrower defaults.