Tuesday, 12 July 2016

Hard Money Loans vs Commercial Bridge Loans

Typically the term Bridge loans and Hard Money loans are been confused by people in the past
Hard Money Lenders California

as being the same thing because they have some points in common and some points that makes a big difference. Bridge loans are usually are generally given for 1 to 2 years period, whereas Hard Money is anywhere from 6 months to over 5 years.
Both bridge and hard money loans have higher interest rates and neither is considered as a permanent loan because these loans are utilized when conventional loans did not work. These loans help property owners achieve their goals involving non-bankable processes like:
·         Rehab or add-on a commercial property
·         Time to lease out or rent a commercial property
·         Pay discounted loans payoffs quickly
·         To lighten DTI ratio (Debit To Income Ratio) payoff the debit
·         Cash out facility to purchase investment property

The Differences

The major difference between them is FICO Score; a number representing the creditworthiness of a person, the likelihood that person will pay his or her debts. Bridge loans are in box type of loan and require a FICO score of 625 or more. The lender will take anywhere from 2 to 4 weeks to close your DSCR (Debt Service Ratio) will be considered and it could be the make or break point on whether you qualify for a Bridge loan.
The rates are normally between 7 to 9% and it is fixed for a period of time. LTV (Loan to Value) ratio is between 60 to 65%. Prepayment penalty could be anywhere from 6 months to the whole term of the loan.

Hard Money Loans

When you cannot qualify for other types of commercial loans California Hard Money Lenders are there to help you. Hard money lenders are able to give you loans quickly. It will take about 5 to 10 business days to complete the process. Interest rates are from 8 to 11% based on the equity in property, higher the equity lower will be your rates. LTVs are 55 to 65% maximum and prepayment penalties are normally 6 months on a 1 year loan to 1 year on a 2 to 3 year loan.  The good thing about Hard Money is everything is negotiable and it can fit any situation and give the property owner exactly what he needs to achieve in his future objectives.

Friday, 1 July 2016

How to Finance Rental Properties with Hard Money

Hard money is used mostly by investors as a short term solution to fund real estate deals. Hard money is an excellent option that is used to fund fix and flips or buying rental properties until long term financing put in place. 

What is Hard Money Loan?

It is a type of financing used to finance properties for a short term period of six months or a year. Hard money lender use a different terms than the traditional lenders such as bank. Most lenders charge 14 to 16% and points for their money. Points are percentage of total loan and it can add costs quickly when a lender is charging 2-3 or even 4 points on loan.

Why Investors use Hard Money to Finance Investment Property?

The main advantage of a hard money lender is that they may loan the entire amount of money you need to complete a deal. Most lenders base the amount of loan on ARV (After Repair Value). You would have heard that they can loan 65 to 70% of AVR; which is not purchased price i.e. how much home will be worth once you fix the home.

How hard money deal is structured on investment property?

Let us take an example of how one hard money lender structures a deal. You have bought a house for $60,000 having AVR $130,000 and the lender says they will go up to 70% AVR on property. The lenders will loan up to $91,000 on the house based on the AVR. The hard money lender requires bids or estimates for repairs and they will pay out money for the repairs such as construction loans. They will pay 25% of the repairs required at closing and other payment will come it 25% increment and 4 points, but they will reduce the points paid after you do a few deals with them.

The cost to close this deal with a California hard money lender can add up rapidly. The interest on this deal will cost you $6,825 and the points will cost you $3,640 if you use the money for 6 months period. There are lenders that will charge lower interest and points, but will want a split of your profits. Hard money lenders can help you secure a property below market value when you have not other options.