How to choose the best hard money lender in Sneads

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Hard Money Lender FL Sneads

What’s hard money loan?

A hard money loan is a loan given to your borrower from a lender based primarily on the value of the asset that is collateralized that is underlying. Where asset based lenders aka hard money lenders focus mainly on the value of the asset used as collateral for the loan traditional banks and lenders focus primarily on the credit and income of the borrower. Where traditional loans are usually for 15–20 year durations, hard money loans are used as a short term option (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 conventional loan offered 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 conventional funding: (1) Quick Funding– conventional banks take a minimum of 45 days to finance an individual 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 funded within 7–14 days. (2) Property Requires Work– due to the conventional bank‘s very conservative underwriting guidelines, most will not lend on properties needing repair. Nevertheless, an exclusive lender will be pleased to give on a property that either lacks cash flow or demands 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 seldom funded by banks before it can be used; hence the borrower uses a hard money lender settlement the hard money loan with traditional funding, 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, a private lender will provide short-term funding to the borrower to purchase the property and rent it up to stabilization. The hard money loan will be refinanced by a commercial lender with conventional financing once the property is stabilized for a particular period of time. (3) Not based exclusively on credit or income– Traditional banks rely heavily on a borrower’s credit score, past income, and ability to repay the debt. Consequently even quality borrowers including physicians, lawyers, and solicitors who have high incomes but also have a lot of debt are consistently turned down by traditional banks for normal lending. Consequently, there is a huge requirement for private lenders who look at the value of the underlying asset in comparison to the loan amount versus the borrower’s credit history. 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?

The rate by the lender is dependent upon taking a look at a combination 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?

Hard money lenders charge a loan origination fee of 3% to 5% of the amount of the loan. Various fees for file preparation will subsequently charge by an attorney, an application fee, assessment fee from an independent appraiser, and financing processing fee. Capital Funding Financial charges a very low origination fee of just 2%* and offers straight forward conditions without all of the junk fees that are hidden

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 each of the fees (other than the application fee) are paid in the actual loan earnings.

Is there a prepayment penalty with hard money loans?

For example, 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 condition is put in place so the lender receives a small return for the time, hassle and allocation of its funds to your borrower. If the loan is repaid by the borrower after half a year, then no pre payment fee will be issued.

How quickly can a hard money loan that is typical 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 assessment, title commitment). The typical deal takes about one or two weeks to fund as an independent appraisal and title report need to be run on the property.

When employing is an assessment needed?

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

When completing flip or rehabilitation project & a repair, what will 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 will use this as helpful information in releasing resources for rehab purposes. Nothing ever goes as planned when performing a rehabilitation; consequently the lender will want to see the borrowers experience in managing or performing real estate repairs. The lender require an inspection and will release funds in draws for such listed repairs. The lender may also require income statement and a credit report in the borrower showing that the borrower has the ability to repay the loan. Yet, hard money lenders focus mainly on the asset value of the security and never 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 information.