Are you looking to finance a real estate project but are unsure of which route to take?
You can apply for a loan the traditional way, like at a bank, or go with a private hard money lender. Hard money loans are becoming increasingly popular due to the many benefits over traditional bank loans.
If you’re considering this loan, here are six reasons why this may be the best option for you.
1. Speed
When you work with a moneylender, the process is typically much faster than going through a bank. Hard money lenders can usually give you a decision on your loan within a week, whereas banks can take many weeks or even months.
Private hard money lenders in Houston are concerned with the value of the property being used as collateral and not the borrower’s credit score. So, if you’re in a situation where you need funding fast, a hard money lender is usually your best option.
For example, you may need urgent money for emergency repairs or to take advantage of a real estate opportunity that’s about to expire.
2. Flexibility
Private money lenders for real estate are much more flexible than banks regarding loan terms. They are also willing to work with borrowers who may have less-than-perfect credit.
Banks are often inflexible regarding loan terms, and they typically only work with borrowers who have excellent credit.
Hard money lenders understand that people sometimes hit bumps in the road and may need some extra time to repay a loan. Therefore, they are often willing to work out a customized repayment plan that meets the borrower’s needs.
3. No Pre-payment Penalty
Private hard money lenders in Houston understand that things happen, and sometimes you need to get out of your loan early. There is no pre-payment penalty with a hard money lender, so you can do so without paying extra fees if you sell the property or refinance.
On the other hand, banks will often charge a pre-payment penalty of up to five percent, so it’s essential to be aware of this before signing on the dotted line.
4. More Lenient Credit Requirements
If you have a bad credit score or a limited credit history, you might still be able to qualify for a hard money loan. Hard money lenders are more interested in the value of your property than your credit score.
So if you’re unable to get a traditional bank loan, a hard money loan could be a good option.
5. Higher Loan-To-Value Ratios
Loan-to value ratio is calculated as the loan amount divided by the appraised value or purchase price of the property, whichever is less.
Hard money lenders can usually offer higher loan-to-value ratios than banks because they emphasize the after-repair value instead of its current market value.
You can borrow a more significant percentage of a property’s purchase price or appraised value.
Banks are usually more conservative when it comes to loan-to-value ratios. They tend to focus on the current market value of the property.
Final Words
If you want to avoid the hassle and time commitment of working with a bank, consider choosing a hard money lender. Of course, you must verify their license and check their references, but the process is much simpler, and you can often get funding within days rather than weeks or months.