Some people ask us: What do you mean by residential hard money lenders? The term simply means that you can come to certain lenders such as us; we ignore your credit rating and give you a loan on a single family home or duplex. The term “hard money” dips up and under with names such as “no-doc”, private loans, personal loans or bridge loans – it’s all the same. The bottom line is that the underwriting process is based on the borrower’s hard assets. In this case, the lender uses your real estate as collateral for the transaction and you can find yourself with a loan in as short as 3 or 4 days depending on circumstances.
You will find some hard money lenders who lend directly, lend their own funds, and do not charge any advance fee. Residential hard money lenders also provide loans for up to 10 years (or longer depending on circumstances). This gives borrowers the flexibility that they need to maximize their opportunity on a residential property.
How is residential hard money different from a bank loan?
Here’s what you can expect from the bank:
To apply for the loan, you’ll need to show them proof of income, credit score, tax returns, financials, appraisals and so forth. That’s just the least of it. You’ll need a typical minimum FICO score that is at least 700. The higher the better. You’ll need loads of documentation, and you’ll need to provide the money for upfront fees that include appraisals, application fees, and so on. You can only apply for owner occupied and investment properties. And your loan request is capped on loan amount and on the number of properties that you want to invest in. The entire procedure typically takes more than 60 days.
In contrast, residential money lenders look at your residential real estate as basis for loan approval. Your credit rating can be zilch. You need sign only a few documents. The amount varies according to the particular lender. Some ask you for as few as three forms and these assess the value of your property. Some lenders ignore your credit history and score altogether. You’ll find residential money lenders who waive the upfront fees. And the entire procedure takes less than ten days. Note, too, that personal money lenders will offer a range of requirements on how much they will lend (loan to value), what types of real estate they will lend on (commercial, residential, multi-family, land) and minimum and maximum loan sizes.
What you should look out for
All bridge money lenders should be certified through their state regulatory agency and through the National Mortgage Licensing System (NMLS). Borrowers should verify the lender’s license through the NMLS in order to prevent problems at closing, as many states require the lender’s license number to be listed on the loan documents. Borrowers should be sure to carefully review the lender’s interest rate, prepayment penalty, loan to value, default rates, APR, work out solutions, points (fees for the loan), and so forth. For example, a private individual may offer a lower interest rate than a bridge money lending company, but may be unwilling to offer a work out plan, in the event the loan becomes delinquent, or a bridge money lending company may offer a lower interest rate, but demand a high pre-payment penalty fee, costing the borrower more money if he decides to sell or refinance the loan within one to five years. Because these terms are not standardized across the industry, it is important to check with each lender and ask her for her “terms”, as well as how long it will take her to close a loan.
When is a residential hard money loan appropriate?
Residential loans carry high interest fees, so we suggest that you approach a residential money lender only in the following circumstances:
- When you have impaired credit. This includes bankruptcy, history of bad loans and instances of defaulting. In other words, when you are shunned by conventional lending associations and need to move forward.
- When you need fast funds on your residential investment property such as you’ve already bought a home but can’t move out until you’ve sold the present. To do so you need to do repairs. That’s where we come in.
- Property repositioning – i.e. you want to snap the opportunity to buy and flip a home before the market turns. Residential hard money loans help you here, too.
- You’re a time-constrained borrower who needs a quick closing on a home either because you need to move out in a hurry or want to sell it whilst the market is ripe.
- You live outside the USA and want to buy a home here. A personal money loan will help you out.
- You don’t have the time or energy to jump through the multiple hoops of a conventional lender.
- You want to buy several properties or need complex loans that involve multiple collateral. Forget the banks. Approach residential hard money lenders
Residential hard money lenders may be your route when you’re ignored by your bank but need that loan to move forward. Bridge money lenders overlook your credit score and history and may provide you the money based on your collateral. The risk is higher – you may lose your property and prepayments. On the other hand, if you’re able to cover the costs, hard money loans may be your best way forward.