Short-Term Hard Money Loans For Real Estate Investors

This guide covers short-term hard money loans for real estate investors. There are many benefits in getting a short-term hard money loans than traditional commercial loans for real estate investors. Hard money loans are becoming more and more popular among real estate investors. This is because of its many benefits. When most people think of hard money loans, they think that hard money loans are for first-time investors with no experience. Or real estate investors who have bad credit. This is not the case. In this article, we will discuss and cover qualifying for short-term hard money loans for real estate investors.

Benefits of Short-Term Hard Money Loans For Real Estate Investors

Here is the reason why real estate investors prefer short-term hard money loans versus traditional commercial loans. Short-term hard money loans are often called no-doc investment property loans because lenders require very little documents:

• Fast closings
• Most hard money loans can close in 2 weeks
• Traditional commercial lenders take at least 60 or more days to close on commercial property loans
• Hard money lenders underwrite the property and not the borrower so the borrower’s credit and income profile is not important
• Investors can qualify with bad credit and no tax returns required
• Skin in the game: Lenders want borrowers to have skin in the game and have down payment of at least 20% or more

Denied For Traditional Commercial Loan?

Borrowers who get turned down by commercial loans by banks or other lenders after months, they can qualify for alternative financing. Short-term hard money loans are a great alternative lending source. Investors can do a quick closing and save their earnest money. One great benefit of short-term hard money lenders is that closings can happen in two weeks or less and a third party appraisal can be used. GCA Forums is associated with dozens of commercial and private money lenders. GCA Forums Mortgage Group are experts in catering to commercial borrowers who are non-bankable. Most non-bankable borrowers do not realize the lending options they have. Non-Bankable borrowers can now qualify for short-term hard money loans.

Short-Term Hard Money Loans For Real Estate Investors Mortgage Guidelines

Here are borrowers who can qualify:

• No FICO Requirements
• No Tax Returns Required
• No Waiting Period After Bankruptcy and/or Foreclosure
• Minimum loan amount of $100,000: Exceptions allowed for loan sizes under $100,000
• Cross-Collateralization Allowed from real estate investors with multiple properties
• Small Balance Commercial Private Loans Available

Differences Between Short-Term Hard Money Lenders Versus Traditional Commercial Lenders

Below are the pros and cons of short-term private money lenders and traditional commercial lenders:

• Mortgage Rates And Terms:
• Hard money lenders have higher mortgage rates than commercial banks and traditional commercial lenders
• Short-Term Private Money Lenders do not have pre-payment penalties versus commercial lenders
• Short-term hard money lenders close loans in 2 weeks or less
• Traditional commercial lenders may take more than 90 days to close on a commercial loan, no matter the size of the loan
• Streamlined paperwork:
• Very little paperwork required with private money loans and borrower credit
• Income does not matter so that is why closing is fast and quick
• Traditional lenders require resume of borrowers, personal and corporate tax returns, environmental reports, appraisals, due diligence analysis, and other time-consuming paperwork completed by borrowers
• Bankable borrowers often choose to go with short-term hard money loans due to fast closings and rehab the property and then go for an end loan
• Short-term hard money loans if ideal for property flippers
• We offer no doc fix and flip loans with acquisition and rehab financing

Short-Term Versus Long Term Real Estate Investments

The 2008 Real Estate and Credit Collapse devastated many real estate investors. Many lost most or all of their properties including their personal homes. Most commercial loan programs went obsolete. Many commercial lenders required tax returns, high credit scores, and substantial down payments before they would issue a letter of intent to lend. Sub-prime and Non-Traditional lending is now back at both residential and commercial levels. Short-term hard money loans is one of the most popular commercial lending programs and we get dozens of inquiries per day. The key to short-term hard money loans is that investors need to put 20% or more in down payment.

Who’s Real in Short-Term Hard Money Loans Realm

As a managing partner of Investor relations, it is my responsibility to explain and offer up information about hard money lending in Chicago that will educate or inform our potential investors. Our job is to keep current investors in the know about what we are doing as a company to help keep their cash investments safe and getting greater returns. Just today I met with a novice Private Investor that wanted to learn more about private money lending and who we are and what we do at Lending Network Commercial Lending Group. His intent was to vet us as a viable brokering solution that could help him find a better return than what he was getting in his current financial instrument which was getting him about .25% APR. This, of course, was why he wanted to sit down and understand our process and parameters better. It is for every investor to interview and find out if the model that is being offered as a means to increase greater returns on cash on cash investments is viable and real. This takes asking a LOT of questions. In this article, we will discuss and cover the benefits of hard money lending for real estate investors.

Learning Lending of Short-Term Hard Money Loans

Sometimes they can be answered online via a simple website that can house the generic terms & conditions outlining what a borrower will be working inside when they receive the loan. Other information can be secured through face to face meetings, seminars, or even through Skype Being a bit old school, I enjoy sitting and explaining face to face. There’s just something that brings a greater comfort when you can look someone in the eye and tell them what it is you do:

See that the connections are being made in their mind on how they are about to earn interest income in a safer environment

Loan To Investment Value Factor

The “safer environment” is created through mitigation of risk by reduction of loan-to-value investment for our investors. This is done through negotiation and research onto the borrowers. Of course, it’s not as deep as a conventional loan since this is a hard money loan and the loan is more dependent upon the equity. That said, we like to be sure we have some kind of gauge on who we are working with on both sides. The borrower, of course, has the brunt of the risk because they get paid later in the deal (When they sell) . The investor needs to know that they are as secure as possible within the parameters of the deal.

Hard Money Lending And Hard Money Servicing Partners

The bottom line is that you need to have confidence in the broker(s) that you work with. If there aren’t clear answers or answers that just doesn’t feel right, then it’s probably not in the risk tolerance realm you are seeking. Need to understand what level of risk you are willing to take. As a private investor, if you’re looking to fund the fix & flippers, you have a greater risk, (truly medium risk most times). If you are looking to do equity share that makes the risk lesser for you and more for the borrower.

Understanding Short-Term Hard Money Loans

If you’re looking to fund the rehabber that wants to buy and hold, then you must expect that it is most likely your capital will run the length of time and your interest income will become a bit more normal and continuous. (Checks or wired in payments every month until the Balloon is due)

• That being said make sure that your broker understands how to get the borrower in line for a conventional loan so that when the time comes they don’t end up in trouble
• Chances are you could too

Take the time to interview and decide when you have enough information if that’s the broker you wish to work with.

• There are many with a plethora of models to choose from
• You kind of become your own investment advisor
• After all, it is your money

We have a couple of models that can help increase your income potential and help you earn as much as 10% per year every year! Call us at GCA Forums Mortgage Group at 800-900-8569. Or email us at gcho@gustancho.com.

Risk Versus Rewards And Skin In The Game

The less strength the borrower is, the more down payment is required. Investors with less than perfect credit and self-employed borrowers who have little to no income declaration can qualify for short-term hard money loans. If you have any questions on short-term hard money financing or any other types of commercial lending, please contact us at GCA FORUMS, Powered by Gustan Cho Associates at 800-900-8569 or text us for faster response. Or email us at gcho@gustancho.com. GCA Forums Mortgage Group are experts in government, conventional, and Non-QM Mortgages.

Frequently Asked Questions on Short-Term Hard Money Loans For Real Estate Investors

Here are some frequently asked questions (FAQs) about short-term hard money loans for real estate investors:

Questions and Answers on Short-Term Hard Money Loans

What Are Short-Term Hard Money Loans?

Hard money loans are a type of real estate financing. Instead of banks allowing them, private investors and firms offer short-term loans like these. They are often utilized for real estate investment, including fix-and-flip businesses.

How Does a Hard Money Loan Work?

Hard money loans are secured by a real estate property instead of the borrower’s credit score. First, an investor indicates an amount to be loaned. The lender estimates how much it works, and the ratio of the loan amount to property value is determined, which is 60 to 80 percent, usually the standard value.

What Are The Standard Features of a Hard Money Loan?

• Loan Duration: They are usually taken for 6 months to 3 years.
• Interest Rates: Many hard money loans have interest rates between 8% and 15%, sometimes more than pure loans.
• There may also be additional fees like origination fees, points fees, and closing costs.

Who Uses Short-Term Hard Money Loans Most Frequently?

• Hard money loans are triaged towards real estate investors needing fast capital. These investors are usually interested in remodeling and selling homes.
• They are buying properties using an auction.
• It is getting financial assistance to buy properties that need work to make them lovable.

What Benefits/Pros Do Hard Money Loans Offer? 

• Speed: They can even take a week to approve and receive funds.
• Less Restrictions: They are easier to qualify for than other loan types.
• Collateral: They are mostly secured against real estate, and the focus is solely on the properties, not the people borrowing.

Are There Any Cons Associated With Short-Term Hard Money Loans?

• Increased fees: They have high interest rates alongside extremely hefty fees compared to other finance forms.
• Rush to payback: Their short terms make most loans quick to pay back, which mainly causes stress to the investors.
• Refinancing risks: If the borrower fails to pay back, the lender can easily repossess the asset or property.

How Does The Lender Appraise The Applicants for Short-Term Hard Money Loans

They look into the proposed asset, especially considering the collateral. The customer’s strategy for the loan is when selling and when, according to pass books, or renegotiating the dollar against the yuan. Other criteria often include the investor’sinvestor’s experience in real estate, which tends to be a sine qua non-condition with some lenders.

How Do I Reach a Hard Money Lender?

• Internet Search: It is possible to use the Internet to scout for a lender, as several hard money lenders work remotely.
• Real Estate Networking: Registering with local real estate investment groups is an effective means of interacting with and networking with lenders.
• Referrals: Use the networks to get feedback and solicit lenders from people who have successfully accessed their services.

Can I Get a Hard Money Loan Against Any Asset I Desire?

Yes. As long as it meets the set conditions by the lender, the house can be used as collateral for a loan. Such properties include residential homes, business sites, and lease agreements. However, some lenders have specific properties and conditions when issuing loans.

If I Don’t Manage to Make the Repayments by the Time I Should, How Would I Be Impacted?

When a person carrying out repairs on property acquired using a hard money loan defaults, the lender can claim that property and invoke the pre-agreed security clauses. Establishing a concrete exit strategy is necessary to evade such situations.

Have Any Hard Money Loans Been Refinanced?

Yes. Hard money loans are meant to be in place for a short duration before real estate can transition into a conventional mortgage for the larger portion. The property and the borrower’sborrower’s financial condition must meet the requirements set out by the new loan.

Once the due diligence is done, it is prudent to discuss with financial experts before deciding to go in for the financing type with such risks attached. Hard money loans to real estate can be expensive, and caution should be exercised. A ”pass” should not be given to costs measured in fees and interest when speed or flexibility is required.