Every property owner has to make a decision when it comes to taking out loans. The choice between doing business with a traditional mortgage lender and a private lender can be difficult. Weighing the pros and cons would be necessary
Real Estate Investors vs Hard Money Loans
Real estate investors will have to decide if traditional mortgage lenders offer them more convenient than private lenders. The answer could be yes or no. It depends on the needs of the investor.
Here are a few things that should be considered by real estate investors:
- decision doesn’t rely on credit score
- quicker underwriting process
- use various types of collateral
- includes renovation financing
- possibility of payment date extension
Traditional mortgage lenders base their decisions on the credit scores of the applicant. Each bank is different and has its own guidelines concerning credit scores. One bank may find that it’s safer to only accept applicants with a credit score of 700. They may feel that it’s safer and will decrease the chances of default.
While another traditional bank may practice the Fannie Mae guidelines of 620. However, many investors may fall below both of these numbers. Do they stop doing business until their credit scores are better? No, of course not. They will simply locate other lenders who would accommodate.
Hard money lenders do not use credit scores to make their decisions. They rely on other factors. If these other factors are in place, most likely the loan will be approved. So it would only be reasonable for an investor with below-average credit to seek out a reputable hard money lender.
The underwriting process can take up to a couple of days. However, the entire time it takes to receive is about 2 weeks with hard money lenders. Traditional mortgage lenders can take up 2 months.
To be honest many lenders do not have that type of time. They have properties that they want to purchase and money that they need to make. Remember, these properties need to fix and sold.
Hard money lenders find that real estate investors come to them often because of their fast pace and decision making. San Antonio hard money loans make it point to not waste their clients’ time. They work diligently to get through the loan either approved or not approved.
In the real estate business sometimes properties can’t be used for collateral. Often various types of business transactions can cause a property not to be available. For example, if a property has a lien on it, it can not be used.
San Antonio hard money loans understand the needs of real estate investors. If a client’s property is held up than other collateral alternatives are available. Unlike traditional mortgage lenders who only accept real estate property, hard money loans will accept businesses, boats, retirement funds and more.
In deciding how much money should be invested. The private lender takes into consideration that the real estate investors will need funds to renovate the property. It is something that is well-known in the real estate industry. However, traditional mortgage lenders may not understand this. The same way how time is of the essence is the same way funds for fixing up the property is vital.
Negotiating the time in which the loan needs to be paid back can be a crucial part of the loan process. Hard money lenders do not extend long terms. If a real estate investor needs this they may do well in going to a traditional mortgage lender.
Hard money lenders expect to have their money back usually within a year. So the real estate investor has the property to renovate for months. The property owner must take into consideration the time it will take to put the property up for sale. This is important. And it could become the reason why a payment extension is required.
Most hard money loans do extend payment extensions for a small fee. However, the best way to avoid this situation is to negotiate the best term in the first place. If the property owner feels that one year is not viable, they should move on to another hard money lenders that would compromise, because most of them will.