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Hard Money Lenders Process

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Are you thinking about taking out a hard money loan? Before you do, researching more about getting one might help you decide if it’s for you. Read on to learn what it takes to get a loan from hard money lenders.

Who are Hard Money Lenders

Hard money lenders give out loans to people who need money for a new startup, flipping a property, or are trying to renovate their current home. These hard money loans can be the answer to all your financial struggles if you can’t get a traditional loan from a bank or credit union. However, like all loans, it comes with its own set of rules.

So, you might wonder: how can I find these hard money lenders? Well, it’s a lot easier than you think since they are all over the place. You can easily research some local hard money lenders to see which one is right for you.

Asking Hard Money Lenders for a Loan

After you find a few that look reputable and legitimate, put together a professional proposal that will have them saying yes. It’s easier to get a loan through this lender, but they will more than likely approve your loan when you present them with a laid-out plan. This plan should portray how you will repay the loan you owe them within the time they give you, which is likely 3 to 5 years.

Like most lenders, they will each have their interest rates and other particular rules for each borrower. You should go to more than one lender to see where you can get the best deal.

Asking Others for a Loan

Are you okay with asking family for money? It can be awkward, but you can borrow the funds from family, friends, or acquaintances for financial help. Even though family and friends aren’t hard money lenders, they are still another option for getting a fast and private loan.

Your family or friends trust you so that you will get a loan from them faster than other lenders. You can also figure out the loan requirements, such as how long before you need to repay them.

This option might sound great, but it can become a little messier if you drag out repaying them. It could affect your relationship if you don’t pay them back on time, so try to stay on track.

What It Takes to Get Approval

Most people know that it’s hard and takes a long time to get a traditional loan approved by a bank or other lender. However, it’s faster and easier to get approval by a hard money lender. If you are tight on time and need financial help with a project right away, this might be your answer. As reported by Harvard.edu, a traditional loan can take up to 30 to 45 days, while a hard money loan can take a few weeks. Therefore, a hard money loan can get your project going more quickly than a traditional loan can.

Traditional lenders often deny those who have a low credit score. However, that’s not the case with hard money lenders and their stipulations for approval. According to Harvard.edu, “An individual with bad credit can find a hard money loan in the event the job indicates a probable gain.” So, your credit score not matter to them as it does to other lenders since you have to pay them back sooner. This also means you are left with high-interest rates and points could be added to your total amount owed to them.

However, you need some collateral, such as your house or another property for them to approve your loan. They need that collateral in case you aren’t able to pay them back within the time frame you agreed on. Therefore, this is another reason your proposal needs to be perfect. Knowing how you will repay them will be crucial to keeping your collateral in your hands. Otherwise, you might lose it if you don’t commit to your business or remodeling plan.

Conclusion

Is a hard money loan for you? You should research and go over all your options before you settle on this loan. It might seem like your only solution, but going over all the pros and cons of seeking hard money lenders is essential. You could risk losing your collateral and owing them much more than you originally planned. Getting further into debt won’t solve anything, so make sure your proposal is perfect enough. Stay committed and focused on your business goals so you can repay them on time. You can do this if you put the effort and work into it!

Sources: https://exed.canvas.harvard.edu/eportfolios/931/Home/Understanding_Private_Mortgage_and_its_Advantages

 

 

A Projection For Commercial Lending In 2019

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Commercial lenders have to look at what the future holds and how their business will continue. While it is important to be optimistic, it is equally important to be realistic and be ready for any worst-case scenario. Private lending companies such as Arixa Capital are currently in the process of releasing their projections for this year and how they will be able to continue their work.

“We were established to invest in niche asset classes and private markets such as short-term real estate loans. We strive to minimize risk, preserve principal, and generate strong returns and current cash flow to our investors. Arixa Capital specializes in private lending secured by real estate, and we have built a full-service lending and loan servicing platform to ensure a steady flow of investments for our funds.”

Projected Downturn in California

Arixa Capital is one of the first to have completed their assessment. They fear that there will be a significant downturn on California’s West Coast, in particular, for multifamily properties. Prices have become unaffordable even though the West Coast is known for its strong job market and high wages.

Companies like Arixa Capital try to find conservative borrowers whenever possible, which means they don’t have to leverage as much risk. However, if a downturn does happen, it could mean that there will suddenly be a massive influx of investors, particularly those interested in investing in apartments. The result is that hard money lenders are now preparing themselves for an influx of opportunistic investments, so that financing is available should there be a downturn. The verdict is still out, however, on whether and when the next recession will hit.

A decade after the global financial crisis, the United States is expanding at its fastest pace in more than two years, having experienced growth of 3 percent or more for two consecutive quarters. But a long period of U.S. economic growth could be interrupted in the coming years.

Characteristics of the West Coast

California’s West Coast is quite a unique area, however, and this is why experts believe that a downturn is more than likely to happen soon for this particular area. First of all, there has been a huge increase in rental rates. So much so, in fact, that these could become unsustainable. Secondly, lenders are competing to offer better loans, which means they are more than willing to take on higher risks. Should there be a downturn, this would put many borrowers at extreme risk.

The Mortgage Bankers Association (MBA) has recently released its forecasts for 2018, which appear to be strong.

MBA forecasts mortgage banker originations of just multifamily mortgages at $248 billion in 2018, with total multifamily lending at $271 billion. After strong growth in recent years, multifamily lending is expected to hold roughly steady in 2019.

MBA Forecasts

As the largest trade group for mortgages in the country, they surveyed some of the country’s greatest commercial lenders and found that:

  • 80% believe that commercial origination volume will rise in 2018.
  • 50% believe that there will be a 5% or more jump in their own origination volume.
  • 25% believe that there will be at least a 5% increase in origination volume over the market as a whole.

The MBA also released a forecast about multifamily and commercial origination volume, stating that there was a 5% increase between 2016 and 2017, ending at $515 billion. They feel that 2018 will see those levels hold. The analysts at the MBA are optimistic, therefore, and believe that this year will be an excellent year for the commercial real estate (CRE) market due to various fundamentals (delinquency, occupancy, and rental rates) that are strong in virtually every sector.

However, the CRE market is quite far within the cycle and that is a concern. Prices of assets have been rising throughout 2017 and they are now above their past peaks in some classes. This includes the multifamily assets and the office buildings. Yet, the volume of transactions is now not as high anymore.

Western Development

While Arixa Capital is preparing for the worst, Western Development, a different hard money lender, is somewhat more optimistic, while also being realistic about the future.

Western Development is your premier choice for hard money lending. Our company specializes in lending on land, residential and small commercial properties or other collateral. Currently, we fund loan requests in Maryland, Virginia, the District of Columbia and Delaware.

Based in Virginia, they have seen a significant number of people starting to work from home. They are realistic about the fact that this could cause some degree of difficulty for office properties. Additionally, there are some serious issues in the retail industry, shown, for instance, by the difficulties experienced by giants such as Sears.

The chain will shutter 64 Kmarts and 39 Sears stores across the U.S. by April. Sears has lost more than $10 billion in the past few years and weak earnings have caused executives to question the business’ sustainability.

At the same time, Western Development feels that there hasn’t yet been a bubble burst, with the market still favoring sellers in certain areas. While there is certainly a national trend going on, localities still have their own particularities. Hard money lenders that focus on specific geographical areas, therefore, may not struggle to remain in business so long as they are in positive localities.

Hard money lenders like Western Development emphasize smaller loans, which usually are required by risky borrowers. When a recession hits, banks stop agreeing to mortgages, which usually means hard money lenders do better. However, the current conditions are not as good for hard money lenders anymore. People seem to have unrealistic expectations in terms of the rates they can request from hard money lenders, not understanding that rates increase if they present a higher risk. What this means is that a lot of hard money lenders are currently standing by, watching people take on too much debt because the rates are low. History has shown that this inevitably leads to a recession, at which point everything will change once again.

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Could UK Hard Money Lenders Be Moving Into The USA?

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There are numerous hard money lenders in this country and their services are highly appreciated. One of the reasons for that is that there are still a lot of distressed and foreclosed properties for which traditional lenders are reluctant to provide financing. Because of the fact that there is a demand for hard money, the US market is particularly interesting for foreign investors as well. A recent report, the EY 2018 UK Bridging Market Study showed that our market could be particularly interesting for investors from the United Kingdom.

If they were to consider international expansion, the US market appeals to many bridging lenders, as they can offer a similar product proposition and there is capacity to grow quickly.

One of the reasons why this country is so interesting for foreign bridge lenders is because the regulatory environment is quite easy. Each state has its own Department of Real Estate, which mandates only that there has to be at least one person with a valid real estate broker license. The exact requirements for that license also vary, with the requirements in Georgia being wholly different from those in Arkansas, for instance.

Why this Country Is So Appealing to UK Lenders

One of the main reasons why UK hard money lenders are so interested in this country is because of the size of the market itself. The UK market, while sizable, is quite limited, particularly since the Brexit vote.

Mat Oakley, head of European commercial research at Savills, says that deals were now taking longer to sign and investors were seeking clarity over Britain’s future status.

The US market, on the other hand, is both incredibly large and highly secure. Furthermore, compared to other countries, including England and Wales, the US is a lot more creditor-friendly. The result is that, for hard money lenders at least, the market is incredibly attractive. An added element is that many hard money lenders in the UK are growing very rapidly, which means international expansion will soon be an absolute requirement.

The Great Recession was terrible and its social, political, and economic impact will long be felt. However, out of the doom and gloom, a number of positive developments have also been noted.

The Great Recession caused many businesses to close their doors or file for bankruptcy protection, but the rapid rise in unemployment also drove an increase in entrepreneurship. For many people across the U.S., the potential opportunities from opening a new business outweighed the alternatives, despite slumping demand and tight credit.

Of particular interest is the fact that one of the areas in which entrepreneurship was seen more than in others was in construction and real estate. The opportunities to make a huge profit from the property market in the US, particularly with house prices rising again, are significant. So much so, in fact, that it would be financial suicide for any investor not to consider it. If partnered correctly, the environment is near-perfect for lenders from the UK.

Problems Facing UK Lenders in This Country

While it is undeniable that the opportunity is there and that it promises lucrative returns and particularly due to the fact that the two countries use the same language and that there are few legal barriers in place, there are some obstacles to be aware of as well. The UK market is shrinking rapidly and this has made competition much tighter. The result is that many look at US and presume that, due to the size, there is room for more lenders. However, the reality is that, while the country may be large, there are already many hard money lenders in the US. Indeed, within this country, it can be difficult for a prospective new lender to determine market share.

Do you know your organization’s local, regional and national market share? Accurate volume data about the private lending market can be hard to come by. Yet it’s critical to know the size of your market if you want to raise capital, measure success or grow your business.

While there is certainly a demand for private lenders in this country, there certainly isn’t a shortage in supply. Meanwhile, the infrastructure, regulatory framework, and legal system is not as stringent as what it is in the UK, meaning that lenders may feel somewhat unprotected. Indeed, many private lenders from this country were looking at investing in the UK before the Brexit vote happened.

If UK lenders want to move into this country, they will require very significant resources. Naturally, a capital resource will be essential in order to provide the loans in the first place. But they will also have to conduct significant research and have the funds available to build a recognizable brand that outshines that of the lenders that are already here. Hence, it seems that most financial experts would now suggest that UK hard money lenders should not set themselves up as separate entities on this market, but rather that they partner with a firm that is already here.

In order to complete an international expansion, and certainly one as far in distance as between the UK and this country, will require significant due diligence and a lot of research. Additionally, it means the lenders must start to build a local professional network, which takes time. For many existing private lenders, this is too big of a hurdle to overcome.

Another potential issue is the fragmentation of the market. Each state has different rules in relation to the recovery of hard money loans. For instance, it is very easy to achieve foreclosure in California, but much more difficult in New Jersey, Florida, and New York. This disparity is something that foreign lenders find hard to work with.

Texas processes foreclosures fastest, with an average of 90 days. At the other end is New York, with an average of 1,019 days. Experts say there are pros and cons to getting through them both too fast and too slow. The national average is 348 days to complete a foreclosure.

At the same time, the market for financial services in this country is one of the most sophisticated in the world. This means that those looking for bridging opportunities often already have somewhere to go. It would be nearly impossible for a foreign investor to be able to compete with this.

Nevertheless, throughout its history, this country has been the land of opportunity. From the gold rush to oil to real estate, it is where people can obtain untold riches if they can conquer the market. That is a dangling carrot that some investors simply find too hard to resist.

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The Real Deal With Hard Money Lenders

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A lot of people who want to move into the property investment market will soon find that they would like to know about hard money lenders. They don’t really know who they are, where to find them, whether the conditions of their loans are suitable, and so on. If this you, it’s important to learn to understand all you can before making important financial decisions.

What Is Hard Money?

The first thing to understand is the concept of hard money.

Hard money lenders (HMLs) are typically private individuals or small groups that lend money (Hard money) based on the property you are buying, and not on your credit score.

Soft money is often hard to be accepted for, but it has flexible terms and it is very affordable. Hard money, on the other hand, is easy to obtain but it comes with restrictive rules and is more expensive because it has higher interest rates. Furthermore, soft money usually comes from financial institutions, whereas hard money comes from private investors. This is also why the hard money loan is more expensive and restrictive because people are investing their own capital.

Hard Money Lending Terms and Conditions

Because hard money lenders are often private individuals, they can set their own terms and conditions for the loan. In the past, it was based solely on the fair market value of the property, but many now also want additional equity. Hence, while they have different acceptance criteria when compared to banks, they do have very strict criteria as well.

It’s therefore common for private lenders such as hard money lenders to issue loans based on LTV for a property in good condition and loans based on ARV for a property in poor condition. Purchase hard money loans are based on LTV while rehab loans are based on ARV.

The ARV is the After Repair Value and hard money lenders usually loan no more than 70% of that. What this means is that, in some cases, you may be able to borrow more than the purchase price of the property as well as additional money to repair it, because the ARV is so much higher than the purchase price.

In return for this, however, you can expect to pay a higher interest rate. Usually, the interest rate is between 12% and 20% per year and you can take out these loans for a duration of six months to five years. The interest rate will usually depend on your experience as a home investor and on your credit score. Additionally, you will have to pay a number of fees and closing costs, generally from two to 10 points, in order to be able to access this type of money.

The Pros and Cons of Hard Money Lenders

One of the key benefits of a hard money loan is that the decision-making process is incredibly quick. When an investment opportunity arises, it is vital that you move fast, or someone else will snap it up. This is why you have to build relationships with hard money lenders so that you never miss out.

A big disadvantage, however, is that most hard money loans come with a pre-payment penalty.

If the borrower decides to prepay the loan, the lender will issue a prepayment quote based on this principal sum. The sum may be as large as the entire initial loan. Despite years of payments toward the debt, the borrower has paid off only the interest and failed to actually gain equity in the property.

Applying for a Hard Money Loan

When you apply for your first hard money loan, you will usually have to supply quite a bit of information. This includes your income tax returns, your W-2s, your pay stubs, bank statements, and more. This is because lenders want to make sure that their assets are properly protected. That being said, there are still hard money lenders out there who care little about your financial background and are interested solely in the ARV of the property you want to invest in.

Is a Hard Money Loan Right for You?

A key question to ask is whether or not a hard money loan is right for you. If you are a new investor and you don’t have a lot of money behind you yet, or if you have a poor credit rating, you may not qualify for traditional loans. If you need money in a hurry, then private loans are also much more appropriate. Even if you have a good credit score and a high down payment, it will still take at least 30 days for a bank to accept your application, in which time the deal could have gone to someone else.

Hard money is incredibly creative. While you are technically restricted by how much you can borrow and how that relates to the value of the property, the fact that lenders are happy to consider the ARV of the property means that you can often borrow without having to put anything down.

Finding Hard Money Lenders

Last but not least, you need to know where to find these lenders. They can be found in various states across the country. Indeed, it could be that someone in your immediate social circle is a hard money lender. Real estate agencies and title companies can often refer to you as well. Make sure that you compare the different options that are out there until you find a lender that meets your needs. Because a hard money loan is a very serious financial commitment, you should make sure that you get the best deal available. Hence, make sure to consider interest rates and prepayment penalties.

The above provides an overview of what a hard money loan is and how it works. This should empower you to make educated decisions in terms of whether or not the solution is right for you. Once you have worked with a hard money lender and you have both been happy with the transactions, then you may have a lending partner for life, meaning you can move on to other investments over time.

The Low Down On Alternative Lenders And Hard Money Lenders In Particular

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Once upon a time, borrowing against a home was very easy to do. Today things are a lot different. Although it does not necessarily mean that it is impossible to get a mortgage anymore. Rather, it means that you are likely to have to seek out an ‘alternative lender’ instead. Indeed, regardless of whether you want to refinance an existing property, invest in a property, or buy your first home, alternative lenders are certainly worth your consideration.

Millennials are the largest share of home buyers at 36 percent. Sixty-five percent of these buyers were also first-time home buyers.

Who Are the Alternative Lenders?

Basically, they are organizations, groups, and individuals that aren’t banks but are happy to provide you with a loan against your property. Alternative lenders often offer very interesting benefits, including online applications, unique terms and conditions, and help for those with a poor credit score.

There are several factors that contribute to a credit score, including the number of inquiries made for new accounts.

There are also lots of different lenders out there that could be classed as ‘alternative’, although they usually span two different categories. The first is the direct lender, which means that they actually lend their own money. The second type is the broker or middleman, who connects lenders and home buyers together.

The Credit Union

One example of a direct lender is the credit union.

On average, credit unions offer higher saving rates and lower loan rates. This could help group your savings grow faster and loan cost less. Credit unions also tend to charge lower fees, require lower deposit balances and offer better service.

They are a direct lender because it is their money that is provided for home loans. They also have different mortgage process options. Usually, you do have to be a member of a credit union before you can apply, however. Additionally, it is important to be aware that not all credit unions are created equal and that they all have different membership requirements and financial options.

The second type of direct lender is an online lender.

New online-only mortgage lenders and online options for existing lending institutions are available to the public every day. As virtual tools become the new norm, homebuyers looking to finance their big purchase should expect a less intimidating and more efficient borrowing experience.

Because these lenders operate online, they often have opportunities to customize the loans that are available. Additionally, they often only take minutes to approve an application, all of which is done electronically. Their fees are also often much lower than other lenders. However, it can be difficult to speak to an actual person should you have any question.

The Hard Money Lenders as an Alternative Lender

The final option is the hard money lender. These lenders exist for two main types of individuals. First, there are there for those who have applied or tried to apply for all the other alternative lending options and either have been declined or already know they won’t meet the criteria yet. The latter is the better option as it reflects better on the credit score. The second group of individuals who use these loans are investors who know they will soon sell the property, or take out a more traditional mortgage on it. Fix and flippers are good examples of these.

Whichever type of lender you want to go with, it is vital that you exert due diligence and that you do your research. Each alternative option has its own pros and cons. At the end of the day, your financial future is at stake so it is important that you find the one that will give you the greatest benefits.

Why Hard Money Lending Is More Exciting Than The Blockchain

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Blockchain payment technologies like Fintech are hot topics right now. However, today’s economy is not yet based on cryptocurrencies and other such technologies. In fact, according to many experts, the real heavy economic lifting is currently done by nonbank lending. Over the past 30 years or so, there has been tremendous evolution and expansion in this particular niche, and even more so over the past decade. In fact, half of the residential mortgage market is now supported by nonbank lenders, something that is also causing some concern.

Non-bank failures could be quite costly to the government, but this issue has received very little attention in the housing-reform debate. The funding and operational structure of the non-bank mortgage sector remains a significant channel for systemic liquidity risk.

Be that as it may, this is a golden age for hard money lenders, private debt funds, and other non-traditional lending sources. In addition, they are aware of their limitations and risks and are considering methods of improvement. At the same time, they are focusing more strongly on both commercial real estate (CRE) projects and multifamily constructions. This is because there are two big problems with traditional banks: rising interest rates and increasing regulations.

The Growth of the Hard Money Lender

A quick look at financial news will rapidly reveal that all media eyes are on blockchain technology. However, while this has a significant impact, it is nowhere near the impact of the nonbanking sector on the economy. This is shown, for instance, in the volume of financial transactions performed by Fintech.

Transaction Value in the “FinTech” market amounts to US$4,256,048m in 2018. Transaction Value is expected to show an annual growth rate (CAGR 2018-2022) of 17.2% resulting in the total amount of US$8,018,084m in 2022.

They may be impressive figures but the non-banking sector has distributed around $100 billion in annual transactions. This was revealed by Pregin, a financial data firm.

The mortgage industry takes up by far the largest chunk of nonbank lending. Around 50% of residential mortgages were funded by non-traditional lenders in 2016, up from just 20% in 2007. For the VA and FHA insured mortgages, they funded around 75% in 2016. At least 80% of the volume of Ginnie Mae guaranteed mortgages were funded non-traditionally in 2017 as well.

Ginnie Mae (the Government National Mortgage Association) differs from Fannie Mae and Freddie Mac in that it operates as a government agency. It does not issue mortgage-backed securities and its guarantees are backed by the full faith and credit of the U.S. government.

Non-traditional Lenders Expand Their Reach as Small Banks Become Unable to Offer Mortgages

Clearly, non-traditional lenders are increasing their reach, providing services where traditional options are no longer available. Last year, 60% of the Ginnie Mae loan pools were serviced by non-banks, and 35% and 38% of the Freddie and Fannie Mae pools were also funded by them. It is also believed that this growth will only accelerate over the coming years due to the new capital rules put in place by federal regulators, which have affected all banking institutions.

Due to these rules, smaller banks in particular simply cannot offer mortgages anymore, as their portfolio is too large compared to their capital. That said, the risk this poses to small banks has been recognized. As a result, full implementation has so far been delayed while the rules are simplified.

Although some regulatory easing may therefore occur, banks had already started to move away from mortgages and because of the current uncertainty, they have continued to do so. The slack, inevitably, will be picked up by non-traditional lenders. After all, demand for projects will always continue to exist.

The Difference Between Hard Money Lenders And Traditional Mortgage Brokers

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Technically, a hard money lender is a type of mortgage lender but they are very different from standard banks. Generally speaking, hard money lenders are private individuals, which means their systems are somewhat different to that of regular banks and brokers. It is important to be aware of the differences if you are a real estate investor, because you may find yourself having to use a hard money lender. Read more