Real estate investment lenders have one of the most important and exciting roles within the real estate industry. Putting together deals and helping people purchase the home or business they want is a satisfying occupation. It requires creativity, passion, high energy, attention to detail, and strong financial literacies.
Using a variety of tools and strategies, real estate investment lenders create a financial package that works best for a given situation. One of the potential sources of financing under consideration is hard money loans for real estate investors. Here are six top reasons that real estate investment lenders use hard money loans.
1. Fast Loan Approvals
Applying for a hard money loan is straightforward. For the most part, the borrower simply fills out a standard loan application, has a brief conversation with the lender, and will often receive a conditional approval within a few hours. Compared to a bank loan, which could take weeks to be approved, hard money loans happen quickly. And, once the investor has been approved, the loan can be funded within a few weeks or less.
2. Imperfect Credit Scores Are Acceptable
When a bank reviews a loan application, they require information regarding the borrower?s credit and income; in fact, these are often the most important deciding factors. If either the income level or credit score falls outside the bank?s criteria, they will likely not approve the loan. However, hard money lenders put more emphasis on the value of the property and the equity the borrower has in the property.
3. Negotiating A Lower Purchase Price
As with most business dealings that are made in cash, real estate investment lenders can usually negotiate a lower purchase price, by leveraging the promise of a shorter escrow period and a quick close. With savvy property hunting, buyers and real estate investment mortgage lenders can find sellers who are highly motivated to close quickly, and who are willing to negotiate.
4. Reinvesting Equity From An Existing Property
Cash-out refinance loans are available through hard money mortgage lenders, for investors who have sufficient equity in their property. It provides them with quick access to cash that can be invested almost immediately. Hard money mortgage lenders can process a cash-out refinance within a few days.
5. Hard Money Loans Strengthen The Offer
When hard money is involved, the financing is considered to be strong, and may set one offer above others with traditional bank loans. Hard money is considered to be more reliable and the deals less likely to fall through at the last minute for minor reasons. They know the investor is well protected, since most hard money loans are secured by a property with 30 percent to 50 percent equity.
6. Flexible Lending
Conventional banks lenders have a reputation for being very rigid with their criteria, being guided by arbitrary rules and regulations rather than potential and flexible, context-based financing. It often seems they want to prevent borrowers from obtaining loan approval. While a hard money lender will certainly have specific criteria in mind, they are famously more flexible and usually focus more on the value of the property itself. One thing to keep in mind, however, is that hard money has higher interest rates and lower loan to value ratios; interest rates can start at 15 percent, 18 percent or higher.
Real estate investment lenders are interested in a wide range of properties, though many specialize. Commercial property investing is undergoing renewed vitality, and there are many reasons to invest in commercial real estate, from the attractive returns to the equity built through tangible assets. With an effective financial package designed by an investment advisor, particularly utilizing hard money investing where appropriate, it?s possible to begin an upward investment cycle that is profitable and exciting.