Hard money, or private money, loans are quickly rising in popularity for the average consumer.
Once thought of as a risky alternative to traditional funding, hard money lending has evolved to meet the needs of borrowers deemed too risky by banks.
Still, bank loans offer their own benefits and many consumers still choose to finance their mortgages with them. However, many banks are faced with strict underwriting guidelines and “red-tape” that private lenders do not face. Private/Hard Money lenders offer loans to borrowers that have common sense loan requirements that banks lack the ability to approve.
But which scenario is right for you? That depends on your individual needs.
Let’s look at five differences between bank loans and hard money, so you can figure out which is the best for you.
1. Loan eligibility
One of the best things about a hard money loan is the eligibility requirements.
Hard money lenders will need to know about the value of the deal and how you will pay back the loan. They approve their loans based on the borrower’s “hard” asset. If they haven’t worked with you before, they may inquire about your credit score, but not to the extent that a bank would.
Banks determine eligibility by verifying your income, checking into your credit history, and your current credit report. They want to determine the risk factor of the borrower. They will care more about past bankruptcies or foreclosures than a hard money lender will.
Banks also won’t consider the projected value from an investment property to determine eligibility. A hard money lender will look at the merits of the deal. If you’re a real estate investor or house flipper, even if you’re asking for an owner-occupied loan, the lender will be concerned with how much the property is worth or could be worth.
2. Speed of the loan
Hard money loans are well-known for being fast-moving, while bank loans notoriously come with a lot of paperwork and “red tape.”
Borrowers can get approval for hard money loans within days. While pre-approval may be relatively quick at a bank, processing a loan application can take months.
What’s your loan scenario?
The speed differences are due to the amount of information that banks evaluate, as well as the fact that they have more guidelines to adhere to. Hard money lenders aren’t following the same guidelines since they don’t report to the same government agencies that banks do. The private lender is assuming all of the risks, while the bank has many more factors involved.
3. Property limits
Banks limit both the number of and the types of property that you can finance. Any “non-traditional” types of property are often seen as riskier by banks. Funding multiple properties is also hard to do with bank loans.
With a hard money loan, you can fund the following types of properties:
- Commercial and industrial loans
- Single-family and multi-family homes
- Owner-occupied consumer or business purpose
- Non-owner-occupied consumer or business purpose
- Construction ground up, fix-and-flip, or fix-and-occupy loans
- Land loans
- Purchase money, rate and term refinance, and cash-out refinance
In addition, banks will cap the amount of loan you can take out. They typically only cover around 70% of the property’s asking price. A hard money loan, however, has a much higher limit and will depend on the value of the property you’re financing.
4. Borrower and lender relationship
Particularly if you’re a flipper or an investor, who will frequently finance properties, hard money lenders seek to form a working relationship with clients like you.
Hard money lenders are more likely to fund a repeat borrower if they’re in good standing with the lender. That means they’ve repaid their loan on time and the lender found the deals profitable.
Since loan terms are negotiated between the lender and borrower, it’s important to have this professional bond. Together, they’ll set the length of the loan, the interest rate, and the repayment plan for the loan.
A bank loan, on the other hand, will already have non-negotiable terms set when the borrower applies.
5. Flexibility and variety
The bottom line is this — hard money loans offer more flexibility and variety than bank loans. And they’re taking over the industry!
Hard money loans were once primarily for experienced investors. Now, hard money loans can be used for many unique situations. They’re all about the ease and quickness of funding.
Marquee Funding Group is one of the few hard money lenders that offer hard money loans for consumers, or non-investors. They’re also one of the only groups to offer long-term loans such as 15- and 30-year.
Even if the borrower is seeking a loan for a mortgage, they can secure the property with a hard money loan and then refinance for a lower rate. As we mentioned before, if a homebuyer with a previous credit event in their report tries to get a bank loan, they’ll likely be denied, or at least have a hard time.
Hard money loans can be the solution for those who are self-employed, have a short employment history, have a hard time verifying their income, and various other scenarios that are too complex for banks to deal with.
Marquee Funding Group is interested in your specific situation. This group is an experienced team of savvy real estate investors. We understand your urgency to get your deal, or your customer’s deal, done. If your mortgage transaction makes sense, we’ll do it fast and simple – funding in days, not months.
We’re proud of our reputation as a common sense, no-nonsense hard money lender. If you need a mortgage approved, and a bank loan won’t cut it, let us take a look.
We fund loans others won’t.
Submit your hard money loan scenario today.
Photo by Kane Taylor on Unsplash