Hard Money Lenders Asbury Park

Hard money lenders differ from banks by providing loans based primarily on the value of the property instead of focusing on the borrower’s credit or income qualifications. While both banks and hard money lenders offer mortgage loans, the lending requirements and approval processes vary widely between the two. Hard money lenders prioritize the asset as collateral and take less consideration of the borrower’s financial profile. The underwriting with a hard money lender is typically much quicker and simpler, often allowing loans to be funded within one week, whereas traditional banks may take several months. This speed is especially advantageous for real estate investors who purchase foreclosure properties at auction where quick closings are required. Moreover, hard money lenders often fund loans on properties that banks refuse to finance, such as those lacking a Certificate of Occupancy. Borrowers with poor or rebuilding credit benefit from hard money loans because their credit score has less impact on approval. Hard money loans are also useful for refinancing or cashing out on investment real estate. However, it is important to keep in mind that these lenders only provide loans for investment properties and do not support financing for residential homes where borrowers live.

Because obtaining a hard money loan is significantly faster and less complicated than a traditional mortgage, the interest rates tend to be higher. Typically, interest rates range from 9 to 12 percent, and borrowers also pay 1 to 3 points at closing. The loan terms usually last one or two years. Hard money loans are often divided into two parts: the first is to finance the property purchase, generally covering between 70 and 85 percent of the price, while the second portion funds any rehabilitation work required to improve the property. Hard money lenders often finance the full rehab amount. If no rehab is needed, that portion is not included in the loan. When rehab is required, funds are distributed after each completed phase of the work, also called funding in arrears. For example, for a $50,000 rehab, the borrower may complete $15,000 of the work and then request $15,000 in funding from the lender. This continues until the entire rehab amount is funded. The combined loan amount typically does not exceed 65 percent of the property’s after-repair value, or ARV.

Because a hard money loan is considered a commercial loan, a hard money Hard money loans are regarded as commercial loans, and as such, lenders will only provide financing to LLCs, not to individuals. If you don’t already have an LLC, don’t be concerned because setting one up is simple and it can have only one member – yourself.

When approving loans, hard money lenders analyze both the purchase price and the after-repair value of the property to ensure they will be repaid. Acquiring a property at or below market value is critical. If the loan covers rehab, the lender requires that repairs be performed according to the rehab schedule. Also, it is essential that the property title is clear of liens or judgments. Any such claims on the property or borrowing LLC must be removed before the loan funds are released.

Hard money lenders are invested in borrowers making profitable deals. They want you to generate sufficient returns on your real estate investments so that they can recoup their loans. To do this, they make sure there is adequate “spread” in the deal. This means the after-repair value must cover all costs including purchase, rehab, interest, closing, and fees, while leaving enough profit margin for you.

A hard money loan is typically used in these types of real estate investment deals:

• Financing both the purchase and rehab of a property that banks will not support because of its condition or the borrower’s credit. Once repaired, the property is sold to retail buyers, commonly in a “fix and flip.”
• Purchasing rental properties for renovation when traditional lenders refuse to provide loans. After rehab, the property becomes “stabilized” and can be rented, making it eligible for refinancing at more favorable rates.
• Closing deals on properties with strict deadlines that banks cannot meet, such as foreclosures. Hard money lenders often close in a week or less, while banks may take months.
• Accessing equity from properties already owned by using them as collateral in a cash-out refinance.
• Refinancing loans quickly before maturity to avoid default or penalties.
• Acquiring property in the name of an LLC, since banks typically avoid lending to LLCs, making hard money loans a flexible option.

The distinction between hard money loans and flip loans is subtle but important. Hard money loans come from private lenders like West Forest Capital and support many different real estate investments, focusing mainly on the value of the property rather than credit history. Flip loans are a specialized type of hard money loan intended for investors who buy properties, renovate them, and then quickly sell for profit. Although all flip loans are hard money loans, hard money loans have broader applications and can be used for other investment types besides flipping.