Hard Money Loan Florida Winter Garden
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 underlying asset that is collateralized. Where asset based lenders aka hard money lenders focus primarily on the worth of the asset used as collateral for the loan traditional banks and lenders focus primarily on the credit and income of the borrower. Where conventional loans are normally for 15–20 year terms, hard money loans are used as a short term option (1–3 years commonly) 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 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 financing or a hard money loan over a more economical conventional financing: (1) Quick Funding– conventional banks take a minimum of 45 days to finance one family residential loan, any where between 60–90 days to fund a commercial loan, and over 120 days to finance a development loan. Whereas, a hard money loan is commonly funded within 7–14 days. (2) Property Demands Work– due to the traditional bank‘s really conservative underwriting guidelines, most will not lend on properties needing repair. Nevertheless, a private lender will be happy to lend on a property that either lacks cash flow or needs physical developments so long as the borrower has enough “skin in the game” (equity). As an example, a loan secured by a property in need of repairs is really seldom funded by banks before it can be used; therefore the borrower uses a hard money lender rehabilitate and to purchase the property, and then 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. Nonetheless, a private lender will give you short term financing to the borrower to buy the property and rent it up to stabilization. Once the property is stabilized for a particular period of time, the hard money loan will be refinanced by a commercial lender with normal financing. (3) Not based entirely on credit or income– Traditional banks rely greatly on a borrower’s credit score, previous income, and ability to repay the debt. Consequently even quality borrowers such as doctors, lawyers, and solicitors who’ve high incomes but also have a lot of debt are turned down by traditional banks for normal lending. Thus, there is a huge requirement for private lenders who look at the value of the underlying asset in comparison with the loan amount versus the borrower’s credit history. We usually look for a 50% – 65% LTV in our loans. What that means is we typically 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 on looking at a combination of factors such as: (1) loan to value ratio, (2) borrower’s credit score & income, (3) the property state and location, (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 with asset based lending?
Most hard money lenders in Winter Garden 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, an application fee, assessment fee from an unbiased appraiser, and a loan processing fee. Capital Funding Financial charges a very low origination fee of merely 2%* and offers straight forward provisions without all of the hidden junk fees
Can the loan fees be paid from your loan proceeds?
Yes, so long as 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 proceeds.
Can there be a prepayment penalty with hard money loans?
For instance, with a 6 pre payment fee, if the borrower should happen to repay the loan in 3 months, there would be 3 additional months of interest due. This condition is put in place in order for the lender receives a little yield for the time, hassle and apportionment of its funds to your borrower. If the borrower repays the loan after half a year, then no pre-payment fee will be issued.
How fast 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 deal takes about a couple of weeks to fund as an independent appraisal and title report need to be run on the property.
When employing is an evaluation required?
Yes, hard money loans generally require comparative sales analysis, broker price opinion, or an assessment. At Capital Funding Financial, an independent appraisal is ordered by us on the subject property.
When finishing flip or rehab project & a fix, what will the hard money lender require?
Well besides the apparent 35–40% equity cushion, the lender will want to see the scope of work described with a cost analysis worksheet and timeline. The lender uses this as helpful tips in releasing capital for rehabilitation goals. Nothing ever goes as planned when performing a rehab; hence the lender will want to find the borrowers expertise in managing or performing real estate repairs. The lender require an inspection and will release funds in draws. The lender will also require a credit report and income statement from the borrower to exhibit that the borrower has the ability to repay the loan. However, hard money lenders focus mostly on the asset value of the collateral and never the credit score.
If you’re looking for 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.
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