Hard money loans are different from conventional loans. They are also called bridge loans at times. While there might be a difference between a bridge and a hard money loan, they are usually used for the same purpose. They both provide temporary financing to bridge the financial gap that would make a permanent financing deal or a sale possible.
Traditional loans vs. hard money loans
If you apply for a loan from a bank, you might have to wait for 60 days for the deal to close. They will go through your credit history report. The resultant approval isn’t always a sure thing either. Whereas when you opt for a hard money loan, that deal could be complete in a week or less! Moreover, most Charlotte Hard Money Lenders won’t be concerned with your credit ratings. If the property you use as collateral is free and clear, then you’d have great chances of getting the loan.
Hard money loans and full disclosure
Working with a reputable hard money lending firm means that you will be aware of the obligations that you must honor to actually take the loan. That’s because most of them follow the Truth in Lending Act strictly. Thus, they will record each detail of the loan for you, and then send you the corresponding documentation. You’d know the interest rates, fees, and any other information that apply to your loan. Once you have received the papers, you can study them, and then arrive at an informed decision on your own.
Requesting a hard money loan in Charlotte
When applying for a hard money loan in Charlotte, you will need to provide relatively simple qualifications. For instance, the lender will start by asking you if you are a legal adult citizen or not. If you satisfy this requirement, they will ask you for a valid email address and other details, such as a working phone number. The lender will also need a bank account to which they can transfer the money.
When you opt to get a hard money loan online, you may have to fill a quick online form that will probably ask for similar details.
Situations ideal for a hard money loan
The property requires too much rehabilitation
Since hard money loans are borrowed against property as collateral to usually buy another property, they are ideal for certain situations. One of them is when the borrower wants to buy an apartment complex that needs a lot of rehabs to qualify for a permanent loan.
So, if the borrower can’t fulfill the permanent loan requirements, they can borrow money via a hard money loan. This money can be used to rehab the apartment complex. When the repairs are done, the building will meet the permanent loan requirements easily.
The hard money loan they take out can become even more secure if the borrower requests an additional six months. This will give them some wiggle room to complete the rehab before the hard money loan repayment duration expires. At times, an investor may face difficulty in completing a project due to a shortage of labor. The process takes a few extra months. This means the investor would not be able to complete the hard money loan at the right time – and face the consequences!
The property falls short when it comes to cash flow
If the cash flow falling short is the reason why a property won’t qualify for permanent financing, then hard money loans can be a good alternative. With it, an investor can use the payback duration to increase occupancy in the building. They may also redirect more cash by raising the rents. This works especially well if it is a multifamily building that the investor wants to borrow against.
Credit report rating is too low
If an investor cannot apply for bank financing because of a low credit score, they can get a hard money loan. While the repayment period lasts, the said investor can bring up their credit scores. Then they can qualify for a bank loan and get permanent financing.
Hard money financing can also be used if the borrower has a negative mark. Such a mark becomes part of their report by having declared bankruptcy, a tax lien, foreclosure, judgment, or loan modification. What’s more, they may not qualify for permanent financing with 18 months of bankruptcy left. But a hard money loan could tide them up until those 18 months are over.
A free and clear property can also be used as collateral for financing your real estate investment deals. Even if you do have a property that has a lien on it, a hard money loan can still be a possibility. The value of the clear property and the taxed property can both act as cross-collateral. The loan would be equivalent to the combined value of these properties. With the money from that loan, you can buy the property. Then rehab it until it is in a condition to qualify for a permanent loan for your future real estate deals!