Don’t let conventional loans become your default choice when it comes to funding your next real estate investment property. Hard money loans can be the perfect solution for diversifying and expanding your existing portfolio.
What is a hard money lender to begin with? This common real estate term is not as intimidating as it sounds and is actually one of the most useful and accessible tools for real estate investors to gain an advantage in what is quickly becoming a competitive market as buyers and sellers alike return to conducting transactions after the initial COVID-19 lockdown. Hard money lenders are organizations that fulfill a legitimate and essential niche in the real estate market, providing fast, asset-based loans. What’s more, they provide funding for sprawling real estate investments and regular homes alike. These loan providers are distinguishable from traditional banks in that they use their own funds to finance real estate deals as opposed to using money from depositors.
Now that you understand what hard money lenders are, you’re next question may be why you should use one. The short answer is time. In the real estate world, time is literally money. From an investor’s perspective, the faster that you can finance and close a deal, the faster you can turn to the next project on your itinerary—the more deals you complete, the healthier your bottom line is when it’s all said and done. Because hard money lenders do not conduct extensive background checks on applicants, loans can be approved in a matter of days as opposed to weeks. This makes them particularly useful for investors targeting time-sensitive deals. On the opposite end of the spectrum, normal banks can take as long as 30 days to approve your loan. Given the dynamic nature of the current real estate market, this can be an unacceptable delay.
Whereas traditional financing is premised on the creditworthiness of the borrower, hard money loans are asset-based, meaning the underwriter evaluates the viability of the real estate project and its inherent worth or potential to produce a reliable revenue stream. This unique form of underwriting gives hard money lenders increased flexibility when it comes to the specific terms and conditions of the loan itself. Even hard money loan payments can be renegotiated in certain situations. With traditional financing, it is often challenging to obtain a new loan for another property you are interested in while you have an outstanding mortgage. Smart investors will use hard money loans to fund the acquisition of several properties in a compressed time window.
The application process for a hard money loan is also much less of a hassle. With conventional financing, the lender is required to verify your income and select the amount based on your target property’s appraised value. Those are only the initial steps of a drawn-out process that can be both time-consuming and overly-selective. Often a small error with the application materials can lead to a substantial delay. Conversely, with a hard money lender, investors can obtain more flexible financing terms at different incomesand do not need to have a stellar credit history. While these lenders do take this data into account, they focus their attention on the appraisal of the property to determine the amount of money you need to complete the transaction.
2021 is shaping up to be an active year in the real estate industry. Make sure you take full advantage of the favorable market conditions by having the funding you need when you need it in order to accomplish all of your real estate investing resolutions for the New Year. At Express Capital Financing, our team of dedicated financial professionals are committed to providing you with a fast and efficient underwriting process so you can focus your attention on what really matters.