Hard money loans are a financing option for people who are unwilling or unable to use traditional loans. Private loans come from investors who are individuals or organizations willing to lend money based on the value of the property in question.
When you need a loan quickly and you can’t wait a full month for a bank to approve it or the bank refuses to lend you money, a hard money loan usually solves the problem. . Moreover, it is often the only option.
So what are hard money loans and how do they work in Miami? Let’s start from the beginning.
What is hard money?
When you apply for a loan, most lenders will ask you for proof that you can repay it. Traditional lenders focus on your income and credit score, and they also like to see a clear history of responsible borrowing when approving a loan.
Going for a traditional loan is a slow and complicated process, even with a great credit rating and high income. Anything negative on your credit report can become a reason for the bank to reject your request.
Private lenders take a different approach. They will lend you money on the basis of a collateral, which is the property itself. Your ability to repay the loan is not critical for approval, and neither is a perfect credit score.
If something happens and you can’t repay the loan, the lender will sell the property to cover your costs. This is the main reason why the value of the property is much more important to hard money lenders than the positive credit score of a borrower.
Typically, hard money loans are short term, lasting anywhere from six months to five years. Either way, you wouldn’t want to keep a hard money loan any longer because of the high interest rates. Since private lenders take significantly higher risk than traditional lenders, their interest rates are generally higher.
Benefits of hard money loans
But why would you want to use a hard money loan if it is expensive? This type of financing is perfect for many borrowers, including those who are refused a loan by a traditional bank. Another type of people who see a great use of private loans are real estate investors who buy, repair and sell properties.
Private lenders can approve and fund a loan very quickly, and they usually offer a flexible structure as well. The most significant advantages of hard money loans include:
The lender focuses primarily on the value of the collateral and takes much less interest in the borrower’s current financial situation. If the property’s value is high enough to cover the loan, a private lender won’t take months to research your credit rating, income, borrowing history, credit card payments, etc.
Once you’ve established contact with the lender, the application process usually goes very quickly. This is especially important for real estate investors, as it gives them the opportunity to strike good deals in hot markets before anyone else.
Collateral is the star of any hard money loan. It is the most important asset that a lender considers when deciding whether to approve a loan. If you are asking for funds to buy a property, the lender will approve an amount equal to the value of the property.
In many cases, private lenders allow you to borrow money on a property that is already in your possession. If so, the value of that property will be what the lender wants to know.
Hard money agreements are much more flexible than bank loan or mortgage agreements. There is no standardized underwriting process and the lender assesses each request separately. You may be able to modify a few things to make the contract more suitable to your needs. A private lender is often an individual who is willing to talk or a business with dedicated professionals. They are hardly ever a big company with firm policies.
Who Uses Hard Money Loans?
Private loans are great for people looking for short term loans. Real estate investors are a prime example of regular hard money loan users. They buy a property and hold it just long enough for its value to rise. They don’t buy residences to live there; they invest in properties that they plan to repair and sell within a year or so.
Once they sell the property, they pay off the loan and are ready to take on another. You can, however, use a hard money loan to buy a home, but you will need to consider a refinance option as soon as a better one emerges.
How To Find Miami Hard Money Lenders
There is a lot of private lenders in Miami, that is why you should be careful in your research. Not all of them are flexible or offer loans that make financial sense. Always connect with trusted lenders like RBI Mortgages with hundreds of satisfied customers under their wing. Choosing the right company to work with is essential when it comes to financing options.