Smart real estate investors use hard money loans for many reasons and there are several scenarios when hard money loans are not only a good option, but they’re necessary. Since traditional lenders have strict regulations when it comes to lending, hard money lenders provide individuals with financing for their real estate investments. Because the interest rates are higher than traditional loans, hard money loans are used for short-term investments. Though the interest rates are higher, investors who use hard money loans can expect big profits if the investment is structured properly.
Most Hard Money Lenders can fund in a matter of days after receiving all the necessary documentation, while traditional lenders can take months. Applying for a hard money loan is a very simple process compared to traditional loans which is known for being a long and strenuous process. Once the real estate investor has been approved for the loan, they will receive the money in a matter of days. When it comes to investments, time is money.
LESS FOCUS ON YOUR CREDIT SCORE
The ability to obtain hard money loans is determined by the value of the property and not the borrower’s credit score. Lenders focus on the “after repair value,” or ARV, which is an estimate of what the property will be worth once the renovation or development phase is complete. The primary focus is on the property’s profitability.
Not every investor has a perfect credit score which is why many consider hard money loans. While traditional lenders focus exclusively on credit scores when it comes to loans, hard money lenders focus on the market value of the property. They’re not concerned with your personal credit. Instead, they are focused on the real estate deal in question. This is how hard money lenders protect themselves in the event of default. Knowing the value of the property helps them limit the amount they loan to the borrower so that they can recoup their investment by taking back the property. This is how hard money lenders are able to provide financing to investors who would not be approved for a loan from a traditional lender.
An offer from a real estate investor with a hard money loan as financing is considered a strong offer. That can go a long way in situations where the property has multiple offers. Hard money loans stand out because hard money lenders are not known to suddenly pull funding for random reasons like banks are known to do. This makes hard money loans more reliable.
When it comes to hard money loans, the most important aspect that the lenders consider is the value of the property. Banks are more concerned with the borrower’s credit and income. If the potential borrower has a credit score that is one point off, they will not be approved for the loan and there is no room for negotiation. The value of the property is important considering that the property serves as the collateral for the loan. Lenders also focus on the “after repair value,” or ARV, which is an estimate of what the property will be worth once the renovation or development phase is complete. The primary focus is on the property’s profitability.
Hard money lenders can help you to get a cash-out refinance loan if a profitable real estate investment opportunity arises and you need money to invest now. If the homeowner has a sufficient amount of equity in their property, a hard money lender can help them with a refinancing loan and the individual can have the funds in a matter of days. Refinancing provides you with money to help you invest in real estate and retirement expenses without giving up the title to your home or sell it. With a reverse mortgage, you can continue to live in your home and even use the proceeds of your loan to help cover your monthly mortgage payments.
Traditional lenders are known for having strict rules and regulations that make it almost impossible for borrowers to be approved for a loan. Hard money lenders are known to be flexible in order to help the borrower get a loan that works for them. Hard money lenders are able to work through issues with a borrower and to offer a solution that works for both parties.
WORK WITH REAL PEOPLE
Even if you can get approved for a loan from a traditional lender, you’re not going to get personalized service with your financing. Not only do you not have to worry about the strict regulations with hard money loans, you will also be working with people who understand the real estate market.
Unlike traditional lenders, hard money lenders can offer partnership and communication in your investments and projects. When you are investing in real estate, you’re not just looking for financing, you are looking for a lender who values open, two-way communication. Some important Trust Deed Investment Information you’ll need are the basics of finding a great MLB. Communication, integrity, and timeliness is most important. Finding an alternative lender to handle these investments doesn’t have to be difficult. Find out more about HML Investments here.