How to choose the best hard money lender in Miami Beach

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Hard Money Lender FL Miami Beach

What’s hard money loan?

A hard money loan is a loan given to a borrower from a lender based primarily on the worth of the asset that is collateralized that is underlying. Traditional banks and lenders focus mainly on the credit and income of the borrower where asset based lenders aka hard money lenders focus mainly 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 solution (1–3 years normally) 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 offered 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 affordable conventional funding: (1) Quick Funding– conventional banks take a minimum of 45 days to finance one 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 generally financed within 7–14 days. (2) Property Needs Work– because of the traditional bank‘s very conservative underwriting guidelines, most will not lend on properties in need of repair. Nonetheless, a personal lender will be happy to lend on a property that either lacks cash flow or demands physical developments so long as the borrower has enough “skin in the game” (equity). As an example, banks really seldom finance a loan secured by a property in need of repairs before it can be used; consequently the borrower uses a hard money lender then, and to buy and rehabilitate the property settlement the hard money loan with traditional funding. Another example would be a commercial property that has no tenants… a bank won’t loan until the property is leased up. Nevertheless, a private lender will give you temporary funding to the borrower to buy the property and lease it up. Once the property is stabilized for a time frame that is certain, the hard money loan will be refinanced by a commercial lender with traditional funding. (3) Not based solely on credit or income– Traditional banks rely heavily on a borrower’s credit score, previous income, and ability to repay the debt. So even quality borrowers like doctors, lawyers, and solicitors who’ve high incomes but also have a lot of debt are consistently turned down by traditional banks for conventional financing. Thus, there is certainly a huge need 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. We usually look for a 50% – 65% LTV in our loans. What that means is we normally 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 typically range from 10% all the way up to 15%. The rate by the lender is determined by taking a look at a combination of variables for example: (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 associated with asset based lending?

Hard money lenders charge a loan origination fee of 3% to 5% of the amount of the loan. The lender will subsequently charge various fees for document preparation by a lawyer, an application fee, appraisal fee from a completely independent appraiser, and a loan processing fee. Capital Funding Financial costs an incredibly low origination fee of only 2%* and offers straight forward terms without all of the hidden junk fees

Can the loan fees be paid from your loan proceeds?

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

Is there a pre payment penalty with hard money loans?

For instance, with a 6 prepayment 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 at least a modest yield for the time, hassle and apportionment of its funds to your borrower. If the loan is repaid by the borrower after six months, subsequently no pre-payment penalty will be issued.

How fast can a hard money loan that is typical 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 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.

Is an assessment required when implementing?

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

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

Besides the apparent 35–40% equity cushion, the lender will need to see the range of work described with a cost analysis worksheet and timeline. The lender will use this as helpful information in releasing capital for rehab goals. Nothing ever goes as intended when performing a rehabilitation; therefore the lender will want to see the borrowers experience in performing or managing property repairs. The lender will release funds in draws for such repairs that are listed and require an inspection to be made after each draw is complete. The lender will also require a credit report and income statement from the borrower to exhibit the borrower has the ability to repay the loan. Yet, hard money lenders focus primarily on the asset value of the security and never the credit score.

If you are in need of 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.