Regardless of what the infomercials say, you do need money to buy a home. Whether it comes from a conventional mortgage, a home equity line of credit (HELOC), or a generous parent or friend, you can’t show up to the closing table empty-handed.
We know buyers can find no money down programs, but they still need to secure financing. Also, lenders structure those programs primarily for people who intend to live in the homes they’re financing.
You’re an investor. You need loans for real estate investing—not another 30-year mortgage.
If you have your eye on an investment property but aren’t sure where you’ll get the money, this post is for you! Before you fill out a loan application at a bank or take out a second mortgage on your home, consider these 7 benefits of hard money loans.
1. They Say Yes When Others Say No
Do you know what the biggest challenge real estate investors face today? It’s getting the loan!
Banks and mortgage companies make investors jump through a series of seemingly impossible hoops before they underwrite a loan. They verify the investor’s income, check credit ratings, demand an appraisal, and an array of other procedures.
Traditional lenders deny roughly 10.8% of new mortgage applications.
When a bank says, “no thanks,” private money lenders for real estate, often say, “yes!” While they do want to make sure the loan amount is on par with the value of the property, they usually don’t consider credit in the same way a bank does.
2. Hard Money Is Fast Money
The key to successful real estate investing is the ability to move quickly.
Great real estate deals don’t stay on the market for long. To grab the best opportunities, an investor must bring a sense of urgency to the deal. Investors who can show the money, get the best deals.
Even investors with pristine credit can’t usually get funding from a bank in less than 30 days. If you’re applying for a mortgage during a high-volume month, you may wait 45-60 days.
By the time you get loan approval, another investor can sweep the seller off their feet, and sweeten the deal with cash and a quick closing.
Private real estate lenders can usually fund a loan in about one week. Since the main focus is whether investing in your project makes sense for their business, they tend to forego credit checks and some of the due diligence that holds up funding through a bank or mortgage company.
3. Excellent Negotiating Tool
Think about real estate transactions from the seller’s perspective. They list the property and deal with a revolving door of prospective buyers. Finally, they accept an offer, and then, they wait.
Their buyer usually goes through a traditional lender, which means a home inspection and an appraisal. Then, the buyer waits for loan approval. If the buyer can’t get financing, the seller goes back to square one.
You come along with a cash offer and a promise for a quick close. You’re in a position to negotiate a lower price, especially if you find a seller motivated to close as soon as possible.
4. You Can Borrow More
Remember when you bought your first home? Unless you met specific credit qualifications, you had to come up with a down payment. The bank limited the amount you could borrow, which also put some constraint on the homes you could even look consider buying.
To add insult to injury, you paid loan origination fees. Then, they tacked on private mortgage insurance (PMI).
Work with a hard money lender and the sky’s the limit—within reason, of course.
Generally, they prefer to with a loan-to-value (LTV) of around 75 percent. However, In some cases, a private real estate lender can loan the full price of the property. Furthermore, you won’t pay for PMI.
5. More Flexible Terms
Traditional lenders tend to follow the rules set in stone, especially if the loan product you qualify for is a government-backed loan.
Each private lender creates its own criteria. They also look at each real estate project on an individual basis. Unfortunately, in the bank’s eyes, you’re a number associated with a risk factor. They may not even understand the scope of your project or its value.
You should find fewer restrictions when you work with a hard money lender. If you need to tweak your project’s goals or timeline mid-project, they’ll allow that and work with you.
6. Hard Money and Leverage
You’ve likely talked to plenty of fix-and-fix investors who put every available dollar into an investment. This practice leaves nothing for the investor to work with if they need to fund repairs. It also means they risk missing out on new investment opportunities.
A hard money loan lets you invest in a project without tying up your own money. You’ll have cash on hand to continue pursuing other investment opportunities.
You’ll experience no more missed deals because of money tied up in other projects.
7. Opportunity to Build a Partnership
Many investors who work with a private lender for real estate projects are return clients.
If you pay your loan back in a timely fashion—or even pay it back early—you may find your lender is willing to work with you again on future investments. Sometimes your lender may offer more attractive terms or quicker funding for subsequent loans.
Go into the loan with the future in mind. There’s nothing like the financial backing and experience of a lender who you trust and who trusts you.
Interested in Loans for Real Estate Investing?
We’ve looked at several advantages of the partnership between hard money lenders and real estate investors. When you explore loans for real estate investing and choose a private lender, you’ll enjoy faster approval, more flexible terms, and leverage.
You’ll also forge a relationship with someone who can help you with future projects.
If you’re looking for a financial partner who works with you from start to finish, we’d love to talk with you. Contact us today, and let’s talk about your next real estate investment project.
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