How to choose the best hard money lender in Valrico

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Hard Money Lender FL Valrico

What is hard money loan?

A hard money loan is a loan given to a borrower from a lender based primarily on the value of the asset that is collateralized 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 being used as security for the loan. Where traditional loans are usually for 15–20 year periods, hard money loans are used as a short term solution (1–3 years usually) as a bridge to acquire a rehab, or stabilize a commercial, retail, office, industrial, multi–family, or single family residential home.

Why exactly would someone 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 conventional funding: (1) Quick Funding– conventional banks take the absolute minimum of 45 days to finance an individual 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 commonly financed within 7–14 days. (2) Property Demands Work– due to the traditional bank‘s very 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 demands physical developments so long as the borrower has enough “skin in the game” (equity). For example, banks very infrequently finance a loan secured by a property in need of repairs before it can be used; hence the borrower uses a hard money lender to buy and rehabilitate the property, and then payoff the hard money loan with normal financing. 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 a personal lender to the borrower to buy the property and lease 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 certain time period. (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. Thus quality borrowers like doctors, lawyers, and solicitors who have high incomes but also have lots of debt are turned down by traditional banks for normal lending. Consequently, there’s an enormous need for private lenders who look the value of the underlying asset compared to the loan amount versus the borrower’s credit history. We typically look for a 50% – 65% LTV in our loans. What that means is we generally 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 generally range from 10% all the way up to 15%. The rate by the lender is determined by looking at a combination 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 involved with asset based lending?

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, an application fee, appraisal fee from a completely independent appraiser, and a loan processing fee. Capital Funding Financial offers straight forward conditions without all the trash fees that are concealed and charges an incredibly low origination fee of only 2%*

Can the loan fees be paid from the loan proceeds?

Yes there’s a big enough equity cushion in the real estate. Most of the time each of the fees (apart from the application fee) are paid from your actual loan proceeds.

Is there a pre payment penalty with hard money loans?

For example, with a 6 prepayment fee, if the borrower should happen to repay the loan in 3 months, there would be 3 extra months of interest due. This condition is put in place so that the lender receives at least a small return for the time, hassle and apportionment of its funds to a borrower. If the borrower repays the loan after half a year, subsequently no prepayment fee 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 evaluation, title commitment). The typical bargain takes about 1 to 2 weeks to fund as an independent appraisal and title report need to be run on the property.

Is an appraisal required when using?

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

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

Besides the apparent 35–40% equity cushion, the lender will need to see the extent of work described with a cost analysis timeline and worksheet. The lender uses this as helpful tips in releasing funds for rehab purposes. Nothing ever goes as intended when performing a rehabilitation; therefore the lender will want to see the borrowers expertise in performing or managing property repairs. The lender require an inspection and will release funds in draws for such repairs that are listed. The lender will also require a credit report and income statement in the borrower to show that the borrower has the ability to repay the loan. Nevertheless, hard money lenders focus mostly 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 information.