How to choose the best hard money lender in Melbourne

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Hard Money Lender FL Melbourne

What is hard money loan?

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

Why exactly would a person pick 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 more affordable traditional funding: (1) Quick Funding– conventional banks take a minimum of 45 days to fund a single family residential loan, any where between 60–90 days to finance 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 Demands Work– because of the traditional bank‘s very conservative underwriting guidelines, most will not lend on properties needing repair. However, a private lender will be pleased to give on a property that either lacks cash flow or requires physical improvements so long as the borrower has enough “skin in the game” (equity). Before it can be used by way of example, a loan guaranteed by a property in need of repairs is really rarely funded by banks; therefore the borrower will use a hard money lender then, and rehabilitate and to purchase the property payoff the hard money loan with conventional financing. Another example would be a commercial property that has no tenants… a bank won’t loan until the property is leased up. However, an exclusive lender will give you short term lending to the borrower to buy the property and rent it up. The hard money loan will be refinanced by a commercial lender with conventional funding once the property is stabilized for a particular time period. (3) Not based exclusively on credit or income– Traditional banks rely heavily on a borrower’s credit score, previous income, and ability to repay the debt. Thus traditional banks for normal funding consistently turn down even quality borrowers including doctors, lawyers, and attorneys who’ve high incomes but also have a lot of debt. Consequently, there is certainly an enormous importance of 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 capital decision primarily on the LTV (loan to value). We generally look for a 50% – 65% LTV in our loans. What that means is we usually lend 65% out 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 determined by taking a look at a mix of variables such as: (1) loan to value ratio, (2) borrower’s credit score & income, (3) the property condition 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 involved in asset based lending?

Most hard money lenders charge a loan origination fee of 3% to 5% of the amount of the loan. The lender will then charge various fees for file preparation by a lawyer, a loan processing fee, appraisal fee from an unbiased appraiser, and an application fee. Capital Funding Financial offers straight forward terms without each of the hidden trash fees and charges a very low origination fee of only 2%*

Can the loan fees be paid from your loan proceeds?

Yes there’s a big enough equity cushion in the real estate. Most of the time all of the fees (other than the application fee) are paid from the actual loan earnings.

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

Ordinarily hard money lenders in Melbourne Florida implement a 3–6 month minimum interest prerequisite. 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 condition is put in place so the lender receives a small yield for the time, hassle and allocation of its funds to some borrower. If the loan is repaid by the borrower after half a year, subsequently no pre payment fee will be issued.

How fast 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 evaluation, title commitment). The typical deal takes about one to two weeks to finance as an independent appraisal and title report need to be run on the property.

When applying is an appraisal required,?

Yes, hard money loans typically need an assessment, broker price opinion, or comparative sales analysis. On the subject property, we order an appraisal that is independent at Capital Funding Financial.

When completing a repair & flip or rehab project, what’ll the hard money lender require?

Besides the apparent 35–40% equity cushion, the lender will want to see the range of work described with a cost analysis worksheet and timeline. The lender uses this as helpful tips in releasing funds for rehab goals. Nothing ever goes as intended when performing a rehab; hence the lender will want to find the borrowers experience in performing or managing real estate repairs. The lender require an inspection and will release funds in draws for such repairs that are listed. The lender may also require a credit report and income statement in the borrower to show the borrower has the ability to repay the loan. Nonetheless, hard money lenders focus chiefly on the asset value of the security and not 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 info.