Hard money loans do not use the services of the traditional mortgage lenders. Usually, the money is offered by investors or even individuals, with collateral (usually a home) being used. Whenever you need money really fast or you cannot borrow from a traditional lender, hard money might be an option to consider.
Here is what you should know about the process from a respected hard money lender in Alabama.
Understanding Hard Money
When you want to get a loan, you are usually requested to provide proof that you will be able to repay. Lenders look at credit scores and income. When your history shows responsible borrowing and you do have the ability to properly repay loans, you are approved.
The problem is that in order to get approved, you have to go through a slow process. Even if your income is high and your credit score is great, it takes a lot of time. When there are negative reports with negative items or your income is low, the process is even longer and there is always the possibility you do not get approved.
With hard money lenders, you get money based on the collateral you present. The lenders do not care about repayment ability and the process is thus very fast.
Main Advantages Of Using Hard Money
While there are several advantages we could mention, the most important ones are presented below.
Speed
Since lenders mostly care about collateral, the hard money loan tends to be closed really fast. Lenders do not want to end up having to take possession of a property but they do not have to process lengthy loan applications. Only basic reviews are done to verify income, review statements, and so on. After a relationship is created with lenders, such a process can become even faster.
Flexibility
A hard money agreement is usually highly flexible, especially when compared with traditional loan agreements. The lender does not use the standardized underwriting process. It evaluates every single individual. Based on the current situation, things can be tweaked, like repayment schedules. This is because you might end up borrowing from individuals that have no problem negotiating instead of corporations that have really strict policies.
Approval
Hard money lenders care about collaterals, as already mentioned. When you buy investment properties, lenders lend the amount that the property is valued at. When you borrow against properties you own, the value of the property is what is very important. When you have to deal with negative credit reports or foreclosures, the lenders do not hold it against you. Most do not even analyze credit reports. However, questions might be asked about personal finances.
Most lenders offering hard money loans keep low loan-to-value ratios (LTV). Usually, the maximum LTV is around 60%. You will need some assets to receive higher amounts. The reason why LTVs are low is that if the worst-case scenario happens and the lender needs to sell your property, it can do this really fast while getting money back. But, preferably, you do not end up in the unwanted situation in which your property will be seized.
