The Ins and Outs of Hard Cash Loans
Investors have a choice when it comes to choosing between traditional or private lenders. Most investors are knowledgeable of the fact that traditional mortgage lenders are strict and not deviate from the rules. Even if it means that an investor could desperately benefit from a few minor changes.
Traditional & Private Loans Pros and Cons
Traditional mortgage lenders could take months to process the application. A typical, potential homeowner may not mind the long application process. However, an investor who’s looking to renovate the real estate property than resell it, may become annoyed.
Purchasing property specifically to renovate and resell can be high pressure. Long application waits can actually hinder the investor and cause him/her to lose money. The sooner the paperwork process can finish, the sooner the investor can move forward.
Hard money lenders do not take as long to process applications. It takes only a few weeks in fact. This is extremely convenient for busy investors. They can move through the approval process quickly and move on.
Hard money lenders are private lenders. Since they are private lenders they are free to bend the rules a little. For example during the underwriting process, it is the lender’s discretion to waive certain fees.
One of those fees. Origination fees and other charges, accompany the underwriting process. This means more money out of the investor’s pocket. Money that the investor may have right the moment.
If the lender and the investor have a relationship a few of those fees may be removed. The investor will have to ask of course and give a reason as to why they would like the charge waived. Some investors have been dealing with the same lenders for years, that type of relationship can be beneficial.
Traditional mortgage lenders normally do not consider these types of fee waivers. The lender will have to get permission concerning fee reductions. And will have to give an account or reason why the total amount received is different from the paperwork.
Traditional mortgage lenders do very indepth credit checks on their applicants. A credit score that is too low will result in having to get a co-signed or have the application rejected. With private lenders the credit score of the applicant does not hold as much weight. With a credit score of 500, the applicant can still participate.
One downside of hard cash private loans is the amount of time the investor has to pay back the loan. The time is shorter than a traditional mortgage loan. This can get kind of complicated for the investor.
He now has to make sure the property has been completely renovated, finished and resold, by the time the payment is due. If the investor has a relationship with the lender, he/she may be able to get the loan date extended. However, there may be a costly fee applied.
When it comes to collateral, traditional mortgage lenders need to have the real estate of the investor as collateral. With private lenders, if the property isn’t enough, than the applicant may be given the chance to use other assets. For example, if the investor has a retirement fund or boat etc, the private lenders can consider this.
This is great news for the investor. In too many cases a property may not be enough to have a loan granted. The value of the property is calculated, as if the property is already renovated.
So that’s good news for the investor. Because of this the amount is higher. Even though this is the case more assets may be needed. With a private lender the investor may also be able to add his business. Private lenders try to work with the applicant to reach a loan approval.