How to choose the best hard money lender in Sarasota

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Hard Money Lender FL Sarasota

What’s hard money loan?

A hard money loan is a loan given to your borrower from a lender based mostly on the worth of the underlying collateralized asset. Traditional banks and lenders focus primarily on the credit and income of the borrower where asset based lenders aka hard money lenders focus mainly on the worth of the asset being used as security for the loan. Where traditional loans are normally for 15–20 year durations, hard money loans are used as a short-term option (1–3 years typically) as a bridge to acquire a rehab, or stabilize a commercial, retail, office, industrial, multi–family, or single family residential home.

Why exactly would a person choose a hard money loan (asset–based loan) over a traditional loan provided by a bank with lower rates?

There are many reasons why a borrower would choose to use private funding or a hard money loan over a more economical conventional funding: (1) Quick Funding– traditional banks take a minimum of 45 days to fund one family residential loan, any where between 60–90 days to fund a commercial loan, and over 120 days to fund a development loan. Whereas, a hard money loan is typically financed within 7–14 days. (2) Property Demands Work– because of the conventional bank‘s quite conservative underwriting guidelines, most will not lend on properties in need of repair. For instance, a loan secured by a property in need of repairs is very rarely funded by banks before it can be used; therefore the borrower uses a hard money lender to buy and rehabilitate the property, and then payoff the hard money loan with conventional lending. Another example would be a commercial property that has no tenants… a bank won’t loan until the property is leased up. Nevertheless, short term funding will be provided by an exclusive lender to the borrower to purchase the property and rent it up. The hard money loan will be refinanced by a commercial lender with normal lending once the property is stabilized for a specific time period. (3) Not based entirely on credit or income– Traditional banks rely greatly on a borrower’s credit score, previous income, and ability to repay the debt. Consequently even quality borrowers for example doctors, lawyers, and solicitors who have high incomes but also have lots of debt are turned down by traditional banks for conventional financing. Thus, there is certainly an enormous requirement for private lenders who look the value of the underlying asset in comparison with the amount of the loan versus the borrower’s credit history. At Capital Funding Financial, we base our funding decision primarily on the LTV (loan to value). We typically look for a 50% – 65% LTV in our loans. What that means is we usually lend out 65% of the appraised value of the property to the borrower.

What are the interest rates involved in hard money loans?

Hard money loan rates generally range from 10% all the way up to 15%. The rate by the lender is determined by taking a look at a mix of factors for example: (1) loan to value ratio, (2) borrower’s credit score & income, (3) the property condition and location, (4) borrower’s “skin in the game” (amount of cash equity in the property). At Capital Funding Financial we offer the lowest rates around starting at 8.9%*

What are the fees associated with asset based lending?

Most hard money lenders charge a loan origination fee of 3% to 5% of the loan amount. The lender will subsequently charge various fees for document preparation by an attorney, a loan processing fee, appraisal fee from a completely independent appraiser, and an application fee. Capital Funding Financial offers straight forward provisions without each of the trash fees that are concealed and costs a very low origination fee of only 2%*

Can the loan fees be paid from your loan proceeds?

Yes there is a large enough equity cushion in the real estate. Most of the time all of the fees (apart from the application fee) are paid in the actual loan proceeds.

Is there a pre-payment fee with hard money loans?

By way of example, with a 6 pre payment penalty, if the borrower were to repay the loan in 3 months, there would be 3 additional months of interest due. This requirement is put in place in order for the lender receives a small yield for the time, hassle and apportionment of its funds to a borrower. If the borrower repays the loan after half a year, then no pre payment penalty will be issued.

How quickly can a typical hard money loan close?

At Capital Funding Financial, we’re a direct lender and have the ability to close loans within a few days when given a complete loan package (credit report, income documentation, independent assessment, title commitment). The typical deal takes about one to two weeks to fund as an independent appraisal and title report need to be run on the property.

When implementing is an appraisal needed?

Yes, hard money loans generally require broker price opinion, an appraisal, or comparative sales analysis. On the subject property, an unaffiliated appraisal is ordered by us at Capital Funding Financial.

When finishing a fix & flip or rehab job, what will the hard money lender require?

Well besides the obvious 35–40% equity cushion, the lender will want to see the range of work described with a cost analysis timeline and worksheet. The lender will use this as helpful tips in releasing resources for rehabilitation purposes. Nothing ever goes as planned when performing a rehab; hence the lender will need to see the borrowers expertise in performing or managing property repairs. The lender will release funds in draws for such listed repairs and require an inspection to be made after each draw is complete. The lender will even require income statement and a credit report from the borrower to show that the borrower has the ability to repay the loan. Nonetheless, hard money lenders focus mostly on the asset value of the collateral rather than the credit score.

If you are looking for a hard money loan for a rehabilitation, fix & flip, or investment purpose, contact us today at 954-320-0242 or toll free at 1–866–695–0092 or visit Hard Money Loan for more information.