On many occasions property owners may need to borrow money to purchase and renovate a property. Typically, a traditional bank would not be their first choice. Convenience and promptness is needed and whichever lender can provide those things, they will be the preferred choice, so in this article we will cover what is a hard money loan exactly?
Property owners who are in the business of purchasing and reselling fixed-up homes normally do not rely on traditional banks to assist them first for a number of reasons. They rely mostly on hard money lenders. Hard money lenders are individuals who loan out their very own money.
Because they are using their own money the process can be done in a much more expeditious way. Here are a few reasons listed below:
- quick application process
- less emphasis on credit history
- larger loan potential
- various fees and charges may be waived
- greater chance of loan extension
The application process of applying for a loan can take up to 3 months. With hard money loans it generally takes about 2 weeks. Though the same guidelines are still being followed, hard money lenders have a tendency to move more expeditiously.
The application of the potential borrower must be filed and verified. The underwriting process must be consistent with state laws, though the hard money loans are non-traditional. However, the decision making, research and investigation of the borrower is done a lot faster.
The financial records of the applicant must be verified. Their past loans, property liens, taxes etc must be researched and investigated. It must also be proven that their property is worth the value that the applicant says it is. An experienced appraisal agent must assigned to look over the property
To speed up the process the applicant needs to be sure that he/she bring in all needed paperwork. For example, bank statements, property documents etc must be brought to the application process meeting. The longer it takes to gather all of the necessary paperwork, the longer it may take to process the application.
Traditional banks put a good deal of weight on the credit history of applicants. This is greatly reduced with hard money lenders. Unlike traditional banks hard money lenders use their own money. The money either comes out of the pockets of individuals or out of the pockets of companies.
Traditional banks use the money of the community and those who hold stock in the banks. So they have to be more diligent to be sure that they lend to the right person. There are people that they have to give account to, when it comes to their decision making. This type of stress does not exist with hard money lenders.
Most hard money lenders will be glad to overlook a low credit score or a bankruptcy. They are also most likely to overlook a few late payments. In most cases as long as the applicant has the proper collateral and the down payment, they are accepted.
Property owners usually need a larger loan than other borrowers. The reason why, is because not only do they have to purchase the property, but they also have to renovate it. Renovating a property to the point that it can be resold can be costly. Hard money lenders understand this perfectly.
When it comes to charges and fees, they can add up. Sometimes they can add up to be thousands of dollars. Hard money lenders do not mind looking at some of the fees and contemplate waiving some of them. A then lastly, there is the end date.
The end date is decided on between the applicant and the lender. On that date the loan must be paid back completely. With hard money lenders the loan end date can be extended. However, there may be a small fine attached.
Finding a lender that is willing to work with its customers is very necessary. Locating a lending company that does not just see applicants as a number, but as people is crucial. Choosing a service that will listen, understand and work with the lender is highly preferred and will make it easier in the long run for the borrower.
