How to choose the best hard money lender in Pensacola

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Hard Money Lender FL Pensacola

What’s hard money loan?

A hard money loan is a loan given to a borrower from a lender based mainly on the worth of the collateralized asset that is underlying. Traditional banks and lenders focus primarily on income and the credit of the borrower where asset based lenders aka hard money lenders focus primarily on the worth of the asset used as collateral for the loan. Where conventional loans are usually for 15–20 year durations, hard money loans are used as a temporary option (1–3 years commonly) 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 pick a hard money loan (asset–based loan) over a conventional 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 traditional financing: (1) Quick Funding– traditional banks take the absolute minimum of 45 days to finance just one family residential loan, any where between 60–90 days to finance a commercial loan, and over 120 days to fund a development loan. Whereas, a hard money loan is commonly funded within 7–14 days. (2) Property Needs Work– because of the traditional bank‘s quite conservative underwriting guidelines, most will not lend on properties in need of repair. However, a private lender will be happy to give on a property that either lacks cash flow or necessitates physical advancements so long as the borrower has enough “skin in the game” (equity). For example, a loan guaranteed by a property in need of repairs is really infrequently funded by banks before it can be used; so the borrower uses a hard money lender to purchase and rehabilitate the property, and then settlement the hard money loan with normal lending. Another example would be a commercial property that has no tenants… a bank won’t loan until the property is leased up. Yet, a personal lender will give you temporary lending to the borrower to purchase the property and rent it up. Once the property is stabilized for a particular period of time, the hard money loan will be refinanced by a commercial lender with conventional lending. (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. Thus even quality borrowers including doctors, lawyers, and attorneys who have high incomes but also have a lot of debt are consistently turned down by traditional banks for normal lending. So, there’s an enormous requirement for private lenders who look at the value of the underlying asset compared to the amount of the loan versus the borrower’s credit history. At Capital Funding Financial, we base our funding decision mainly on the LTV (loan to value). We normally look for a 50% – 65% LTV in our loans. What that means is we ordinarily lend 65% out of the appraised value of the property to the borrower.

What are the interest rates involved in hard money loans?

The rate by the lender is dependent on taking a look at a mix of variables such as: (1) loan to value ratio, (2) borrower’s credit score & income, (3) the property state and place, (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 financing origination fee of 3% to 5% of the loan amount. Various fees for file preparation will subsequently charge by a lawyer, evaluation fee from an unbiased appraiser, financing processing fee, and an application fee. Capital Funding Financial charges an incredibly low origination fee of just 2%* and offers straight forward terms without each of the hidden junk fees

Can the loan fees be paid from the loan proceeds?

Yes, so long as there’s a large enough equity cushion in the real estate. Most of the time all of the fees (other than the application fee) are paid from your actual loan proceeds.

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

Ordinarily hard money lenders in Pensacola Florida implement a 3–6 month minimum interest condition. For 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 so that the lender receives at least a modest return for the time, hassle and apportionment of its funds to a borrower. If the loan is repaid by the borrower after half a year, then no prepayment fee will be issued.

How quickly can a typical hard money loan close?

At Capital Funding Financial, we are 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 appraisal, title commitment). The typical price takes about one to two weeks to finance as an independent appraisal and title report need to be run on the property.

When employing is an evaluation needed?

Yes, hard money loans usually demand an appraisal, broker price opinion, or comparative sales analysis. On the subject property, an independent 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 scope of work described with a cost analysis worksheet and timeline. The lender uses this as a guide in releasing resources for rehab purposes. Nothing ever goes as intended when performing a rehabilitation; hence the lender will need to find the borrowers expertise in managing or performing real estate repairs. The lender require an inspection to be made after each draw is complete and will release funds in draws. The lender will even require income statement and a credit report from the borrower to exhibit the borrower has the ability to repay the loan. Nevertheless, hard money lenders focus largely on the asset value of the collateral rather than the credit score.

If you’re in need of a hard money loan for a rehab, 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 advice.

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