Real estate investors need hard money construction to raise money for their projects. As credit conditions change from year to year, it becomes increasingly difficult for developers to get the money they need from traditional lenders.
That’s where private hard money loans come in.
Hard-money mortgages are an essential alternative for developers who need the money to start a new construction project, but they may not be suitable for traditional lenders’ loans. Next, we’ll talk about the differences between hard money and conventional mortgages and how to determine which one is right for you.
Hard Money Building Loans and Traditional Lenders
Traditional construction loans are issued by traditional lenders such as banks, while investors or investment groups offer hard money loans. Hard-money mortgages are secured by the real estate you buy and often charge higher interest rates than bank loans but close in a few days compared to traditional lenders who need more time. However, even developers with a strong financial background and access to conventional loans may opt for hard money loans to finance new construction projects.
When do you need money?
In the real estate construction industry, time is often an essential factor in project success. Financing a loan quickly often makes the difference between spending a fortune or losing it altogether. Mortgages have different timelines for approval and financing, but hard money loans tend to be faster.
Most hard money construction can be financed in a week, but traditional lenders usually take more than 30 days to get the money they need. This does not include the application process, which can be quite time-consuming for traditional lenders, but most hard money loans often complete in a day or two.
How do you configure your loan?
Loan structuring is another concern when choosing a construction loan type. Most traditional lenders take a single approach to all construction loans. The terms are simple, but there is little room for a particular loan application. On the other hand, hard money lenders often offer more flexible terms for repayment of loans and release of collateral.
Hard money lenders are not tied to a universal mortgage model. This means that you can configure your loan terms in a way that benefits both the lender and the borrower. In addition, we can offer a structured repayment program to meet the unique needs of the borrower.
What kind of loan is available?
In short, approval is one of the most critical factors for a mortgage. There are many reasons why a builder may not get formal mortgage approval. Even if your financial history is strong, the bank may see in your application, something that indicates that you are not a good candidate for a traditional loan, such as incomplete records or self-employment.
Hard money lenders may consider more than just a borrower or business’s financial history when evaluating a loan application. Hard money lenders look at your ability to repay a loan and the amount of stock you have invested in real estate. This means that you can often finance projects that were not approved by traditional bank loans.
What kind of loan is right for you?
When comparing hard money construction loans to traditional lender loans, the right choice for you depends on many factors. If you are turned down for a conventional loan, hard money may be the solution to help you fund your project.
For many builders, choosing the right type of loan comes down to their schedule. In this business, it is essential to take advantage of offers quickly and secure land and property. Whereas traditional loans take time to approve and raise funds, hard money loans can be completed and swiftly funded, giving builders a great opportunity.
Conclusion: Ultimately, the type of loan that suits you depends on your situation and priorities. After weighing each type of mortgage’s strengths and weaknesses, consider a hard money construction that provides the flexibility and conditions you need to get your project on track.