Whether you are seeking a loan for buying a home or a business start-up, it is imperative to weigh the pros and cons of every option available. This post is about the less discussed type, the hard money. It is a type of loan that does not require the use of conventional mortgage lenders. Individuals or investors make loans to you based mainly on the property you’re using as collateral.
Hard money may be the only alternative when loans must be made promptly or when conventional lenders may not authorize a loan. Let’s take a look at what it is and why to search for hard money lenders for business in Tacoma WA.
What Exactly Is Hard Money?
Generally, lenders need evidence of your ability to repay loans. They are typically interested in your credit scores and your ability to repay their money. You would be eligible for a loan if you have a robust history of borrowing responsibly which is often measured by your debt to income ratio.
Obtaining approval from a conventional lender is a painfully slow process even when you have got excellent credit score and a large amount of revenue. If you have negative items on your credit report the process may take even longer and you may not get the loan at all.
Hard money lenders have a different approach as they lend based on the collateral used to secure the loan. They are less concerned with your current financial situation and your ability to repay but more about the value of the collateral. If anything goes wrong and you are unable to repay, hard money lenders have the option to recoup their investment by seizing and selling the collateral.
Another important aspect of lending hard money is that it is usually for a brief time, ranging from one to five years. Since hard money interest rates are usually higher than conventional loan interest rates, you wouldn’t want to retain them for much longer than that anyway.
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Benefits Of Lending Hard Money For Your Business
You may be wondering that why would someone in their right state of mind use hard money if it is so expensive? Hard money has a place for those borrowers who are unable to obtain conventional financing when they need it the most! Here are some incredible benefits of lending hard money but not without its risks.
The Speed Of It!
As the hard money lender is primarily concerned with collateral, these loans can be closed more quickly than conventional loans. Lenders do not need to spend as much time looking over a loan application with a fine-toothed comb- checking your income, analyzing bank statements, and so on. If you are dealing in a hot market with multiple offers, you need the loan to be processed rapidly!
Moreover, hard money agreements are generally more flexible than conventional loan agreements. Lenders do not follow a standard procedure but assess each transaction on its own merits and demerits. There is flexibility in things like repayment schedules but it’s best to discuss the terms and conditions beforehand.
For those who are seeking hard money, collateral is the most significant factor. If you need to borrow against any property you own, the lender is only concerned with the value of that property and approves the loan as soon as they are sure of it. Many lenders may not even look at your credit but many of them will ask about your finances.
When Is Hard Money A Good Investment?
Most hard money lenders keep loan-to-value ratios (LTV ratios) typically low. Their maximum LTV ratio may range from 50% to 70%. With ratios, this low, lenders feel they can sell your property quickly and have a good chance of recouping their investment. So when is it a good investment? For short-term lending, hard money loans make the most sense!