Hard Money Lender Manhattan

Hard money lenders in Manhattan are distinct from traditional banks, operating as non-bank, asset-based lending institutions. While both banks and hard money lenders offer mortgage loans, their requirements and lending criteria often differ significantly. Hard money lenders place greater emphasis on the value of the underlying property and less on the borrower’s qualifications, leading to a much shorter underwriting process. Loans from a private money lender are typically funded within a week, in contrast to the extended timelines of traditional banks, which can take 2-3 months or longer.

Real estate investors, particularly those purchasing foreclosures at auctions, often choose hard money lenders due to the expedited closing loan process required by auction terms. Additionally, hard money lenders finance properties that traditional banks may decline, including those without a Certificate of Occupancy (CO). They also offer opportunities for individuals with poor credit or those working to rebuild their credit, as a low FICO score does not necessarily disqualify applicants from obtaining a loan.

Moreover, hard money lenders provide a range of lending options beyond property acquisitions, including refinancing existing loans and accessing cash from property equity. This flexibility makes them a valuable resource for investors looking to leverage their real estate assets.

It’s crucial to recognize that hard money lenders specialize in funding investment real estate projects and do not offer mortgages for residential purposes. Properties financed by hard money lenders are intended for investment purposes only and cannot be used as primary residences.

Hard money loans offer a quicker and more streamlined application process compared to traditional bank mortgages, but they come with higher costs. Interest rates for hard money loans typically range from 10 to 12%, and borrowers can expect to pay between 1 and 3 points at closing. These loans usually have a term of 1 or 2 years.

A hard money loan in Manhattan is typically divided into two parts. The first part finances the property purchase, often covering 65-80% of the purchase price. The second part provides funding for any necessary property rehabilitation, with hard money lenders often financing up to 100% of the rehab costs. If no rehabilitation is needed, it will not be included in the loan.

For properties requiring rehabilitation, funds are disbursed incrementally, after completion of each portion of the work. For instance, if $50,000 is required for total rehab, the borrower may request $15,000 after completing the initial phase of work, with subsequent disbursements following a similar pattern. Hard money loans are typically structured to ensure that the total loan amount, covering both purchase and rehab funds, does not exceed 65% of the property’s after-repair-value (ARV).

Given that hard money loans fall under the category of commercial loans, they are designed for LLCs rather than individuals. If you don’t have an LLC yet, there’s no need for concern. Establishing one is straightforward, and it can be a single-member entity, with you as the sole member.

Hard money lenders carefully scrutinize both the purchase price and the After-Repair Value (ARV) to ensure the profitability of their loans. Purchasing a property below or at market value is a critical factor in loan approval. Furthermore, if the borrower seeks funding for property rehabilitation, the lender verifies that repairs are being conducted according to the agreed-upon schedule and are completed punctually. A clear title is another essential prerequisite for obtaining a hard money loan. Any existing judgments or liens on the property or the LLC receiving the loan (since loans must be made to an LLC) must be resolved prior to loan disbursement.

For hard money lenders in Manhattan, it’s crucial that their borrowers enter into investments or transactions that are financially viable. Put simply, they want their borrowers to generate profits from their real estate investments to ensure loan repayment. To achieve this goal, the lender assesses the deal to ensure there is enough “spread.” This means that the After-Repair Value (ARV) should exceed not only the purchase price and renovation costs but also the loan interest, closing fees, and any other associated expenses, leaving ample room for the investment to be profitable for their clients.

A hard money loan in Manhattan is most often used in the following scenarios:

• Invest in acquiring and rehabilitating a property that doesn’t meet the criteria for traditional bank loans (either due to the property’s state or the borrower’s credit history), intending to sell it to a retail buyer afterward. This practice is often known as “fix and flip loans.”
• Invest in the acquisition and restoration of a property deemed ineligible for traditional bank loans, with the plan to rent it out. Upon achieving a stable rental income, the property can potentially be refinanced with a conventional bank at a reduced interest rate.
• Real estate purchases with tight deadlines, like those at foreclosure auctions, often necessitate hard money loans due to their swift funding process. While hard money lenders can typically close within a week, traditional banks may take 2 or 3 months or more.
• Secure swift cash-out refinancing by utilizing an owned property as collateral.
• Expedite the refinancing process for another mortgage on a property nearing its maturity date.
• Facilitate property acquisition under the umbrella of an LLC. Traditional banks typically refrain from funding LLCs, making hard money loans an attractive alternative for individuals seeking to own properties outside their personal names.