How to choose the best hard money lender in Avon Park

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Hard Money Lender FL Avon Park

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 asset that is collateralized that is underlying. Where asset based lenders aka hard money lenders focus mainly on the worth of the asset being used as security for the loan traditional banks and lenders focus mainly on the credit and income of the borrower. Where traditional loans are usually for 15–20 year periods, hard money loans are used as a short term alternative (1–3 years usually) as a bridge to acquire a rehab, or stabilize a commercial, retail, office, industrial, multi–family, or single family residential dwelling.

Why exactly would someone 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 financing or a hard money loan over a cheaper traditional financing: (1) Quick Funding– traditional banks take a minimum of 45 days to fund a single family residential loan, any where between 60–90 days to fund a commercial loan, and over 120 days to finance a development loan. Whereas, a hard money loan is typically 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. Yet, an exclusive lender will be happy to lend on a property that either lacks cash flow or demands physical improvements so long as the borrower has enough “skin in the game” (equity). Before it can be used for example, a loan guaranteed by a property in need of repairs is quite seldom funded by banks; hence the borrower uses a hard money lender settlement the hard money loan with traditional lending, and then to buy and rehabilitate the property. Another example would be a commercial property that has no tenants… a bank won’t loan until the property is leased up. However, temporary financing will be provided by an exclusive lender to the borrower to buy the property and rent it up. Once the property is stabilized for a certain time period, a commercial lender will refinance the hard money loan with normal financing. (3) Not based entirely on credit or income– Traditional banks rely greatly on a borrower’s credit score, past income, and ability to repay the debt. Hence even quality borrowers such as for instance doctors, lawyers, and attorneys who’ve high incomes but also have lots of debt are consistently turned down by traditional banks for normal funding. Therefore, there is an enormous need for private lenders who look more 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 primarily on the LTV (loan to value). We normally 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 usually range from 10% all the way up to 15%. The rate by the lender is dependent on taking a look at a mix of variables 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” (sum 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?

Hard money lenders charge financing origination fee of 3% to 5% of the loan amount. The lender will then charge various fees for document preparation by a lawyer, an application fee, assessment fee from a completely independent appraiser, and financing processing fee. Capital Funding Financial offers straight forward provisions without each of the concealed trash fees and costs a very low origination fee of merely 2%*

Can the loan fees be paid from the 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 from the actual loan proceeds.

Will there be a pre-payment fee with hard money loans?

For instance, with a 6 pre-payment penalty, if the borrower were to repay the loan in 3 months, there would be 3 extra months of interest due. This requirement is put in place so that the lender receives at least a small yield for the time, hassle and allocation of its funds to your borrower. If the loan is repaid by the borrower after six months, then no prepayment 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 a couple of weeks to finance as an independent appraisal and title report need to be run on the property.

Is an appraisal required when implementing?

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

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

Well besides the obvious 35–40% equity cushion, the lender will need to see the scope of work described with a cost analysis worksheet and timeline. The lender will use this as a guide in releasing resources for rehabilitation purposes. Nothing ever goes as intended when performing a rehab; consequently the lender will want to find the borrowers expertise in performing or managing property repairs. The lender require an inspection to be made after each draw is complete and will release funds in draws for such repairs that are listed. The lender will also require income statement and a credit report from the borrower to exhibit that the borrower has the ability to repay the loan. However, hard money lenders focus chiefly 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 info.

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