Since traditional lenders such as banks are not granting real estate loans, many investors are forced to look for alternative ways to fund their deals.
This is where hard money lenders come in.
Despite the banks tight lending policies, investors everywhere are still very active in the market with the help of hard money loans, which are now considered the king of the real estate financing business.
Hard money lenders are providing much needed liquidity in a badly damaged real estate market, helping the state recover from the devastating housing crisis.
While excellent credit is essential to a convention financing source it is not so important to a Hard money lender.
If your exit strategy is to refinance the property the lender wants to ensure you can.
But if you are going to sell, they are more concerned that you have a buyer that qualifies to buy the property.
This goes back to the importance of a solid exit strategy.
Whether conventional or bridge financing both place a heavy emphasis on the property, which is the collateral. From a traditional lending perspective the value is always considered the lower of the purchase price or the appraisal. Another important factor is ownership seasoning.
Standard guidelines view the value as the lower of the appraised value or purchase price for the first 12 months of ownership. A Hard Money Lender will consider the After Rehab Value with minimal consideration to purchase price.
As such a conventional lender may lend 80% of the value to an investor while a HML lender only lends 65% of the ARV. The 65% may actually be higher.
The qualifying criteria for a hard money loan varies widely by lender and loan purpose. Credit scores, income and other conventional lending criteria may be analyzed. However, most hard money lenders primarily qualify a loan amount based on the value of the real estate being collateralized.
Typically, the biggest loan one can expect would be between 65% and 75% of the property value. That is, if the property is worth $100,000, the lender would advance $65,000 $70,000 against it.
This low LTV (loan to value) provides added security for the lender, in case the borrower does not pay and they have to foreclose on the property.
This is where hard money lenders come in.
Despite the banks tight lending policies, investors everywhere are still very active in the market with the help of hard money loans, which are now considered the king of the real estate financing business.
Hard money lenders are providing much needed liquidity in a badly damaged real estate market, helping the state recover from the devastating housing crisis.
While excellent credit is essential to a convention financing source it is not so important to a Hard money lender.
If your exit strategy is to refinance the property the lender wants to ensure you can.
But if you are going to sell, they are more concerned that you have a buyer that qualifies to buy the property.
This goes back to the importance of a solid exit strategy.
Whether conventional or bridge financing both place a heavy emphasis on the property, which is the collateral. From a traditional lending perspective the value is always considered the lower of the purchase price or the appraisal. Another important factor is ownership seasoning.
Standard guidelines view the value as the lower of the appraised value or purchase price for the first 12 months of ownership. A Hard Money Lender will consider the After Rehab Value with minimal consideration to purchase price.
As such a conventional lender may lend 80% of the value to an investor while a HML lender only lends 65% of the ARV. The 65% may actually be higher.
The qualifying criteria for a hard money loan varies widely by lender and loan purpose. Credit scores, income and other conventional lending criteria may be analyzed. However, most hard money lenders primarily qualify a loan amount based on the value of the real estate being collateralized.
Typically, the biggest loan one can expect would be between 65% and 75% of the property value. That is, if the property is worth $100,000, the lender would advance $65,000 $70,000 against it.
This low LTV (loan to value) provides added security for the lender, in case the borrower does not pay and they have to foreclose on the property.
from Real Estate Investing Tips - LM2 Investment Group - Blog http://ift.tt/1TRCDol
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