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Hard Money Loan Florida Miami Beach
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 underlying collateralized asset. Traditional banks and lenders focus primarily on the credit and income of the borrower where asset based lenders aka hard money lenders focus primarily on the value of the asset being used as collateral for the loan. Where traditional loans are normally for 15–20 year periods, hard money loans are used as a short term alternative (1–3 years commonly) 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 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 financing: (1) Quick Funding– traditional banks take the absolute minimum of 45 days to fund one family residential loan, any where between 60–90 days to finance a commercial loan, and over 120 days to fund a development loan. Whereas, a hard money loan is generally funded within 7–14 days. (2) Property Needs Work– because of the traditional bank‘s really conservative underwriting guidelines, most will not lend on properties needing repair. Yet, a personal lender will be happy to lend on a property that either lacks cash flow or requires physical developments so long as the borrower has enough “skin in the game” (equity). As an example, banks really rarely fund a loan secured by a property in need of repairs before it can be used; consequently the borrower will use a hard money lender to purchase and rehabilitate the property, and then payoff 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, an exclusive lender will provide short term financing to the borrower to buy the property and rent it up to stabilization. The hard money loan will be refinanced by a commercial lender with traditional lending once the property is stabilized for a specific period of time. (3) Not based entirely on credit or income– Traditional banks rely heavily on a borrower’s credit score, previous income, and ability to repay the debt. Hence quality borrowers including doctors, lawyers, and solicitors who’ve high incomes but also have lots of debt are turned down by traditional banks for normal funding. So, there’s a huge importance of private lenders who look at the value of the underlying asset compared to the loan amount versus the borrower’s credit history. At Capital Funding Financial, we base our funding decision mostly on the LTV (loan to value). We typically look for a 50% – 65% LTV in our loans. What that means is we generally 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 determined by looking at a mix of variables for example: (1) loan to value ratio, (2) borrower’s credit score & income, (3) the property state and place, (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?
Most hard money lenders in Miami Beach charge financing origination fee of 3% to 5% of the amount of the loan. The lender will subsequently charge various fees for file preparation by a lawyer, evaluation fee from an unaffiliated appraiser, financing processing fee, and an application fee. Capital Funding Financial offers straight forward terms without each of the concealed trash fees and charges an extremely low origination fee of only 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 (besides the application fee) are paid from your actual loan proceeds.
Will there be a pre payment fee with hard money loans?
Usually Miami Beach hard money loans have a 3–6 month minimum interest condition. For instance, with a 6 pre payment fee, if the borrower should happen to repay the loan in 3 months, there would be 3 extra months of interest due. This requirement is put in place so the lender receives at least a small yield for the time, hassle and apportionment of its funds to a borrower. If the loan is repaid by the borrower after six months, then no prepayment fee will be issued.
How quickly can a typical hard money loan close?
At Capital Funding Financial, we are a direct lender and have the ability to close loans within a days when given a complete loan package (credit report, income documentation, independent assessment, title commitment). The typical price 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 appraisal required?
Yes, hard money loans usually demand an appraisal, broker price opinion, or comparative sales analysis. At Capital Funding Financial, we order an unaffiliated appraisal.
When completing flip or rehab project & a fix, what’ll the hard money lender require?
Besides the obvious 35–40% equity cushion, the lender will need to see the extent of work described with a cost analysis timeline and worksheet. The lender will use this as a guide in releasing capital for rehabilitation purposes. Nothing ever goes as intended when performing a rehabilitation; therefore the lender will want to see the borrowers experience in managing or performing real estate repairs. The lender will release funds in draws and require an inspection to be made after each draw is complete. The lender will even require a credit report and income statement in 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 security and never the credit score.
If you’re 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 advice.
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Links:
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