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Bridge Lending And Hard Money Lending Made Easier By SECC

South End Capital Corporation (SECC) has long been a hard money lender to watch. They seem to regularly change the rules and offerings to make it easier for real estate investors and other buyers and developers to get the money that they need. They have announced some new changes on how they conduct their lending operations, particularly in terms of bridge lending. The biggest change is that they want to move away from asking borrowers to pay a huge fee upfront, and they want to cancel the dreaded due diligence deposits. Unsurprisingly, other lenders in the industry are wondering how to deal with these changes, as they want to keep up and remain competitive. Noah Graysen, Managing Director at SECC, has explained the rationale behind this move.

Traditionally, bridge lenders or hard-money real estate lenders demand large due diligence deposits upwards of $30,000. They also mandate the order of their own appraisal reports. But SECC’s core commercial bridge program [from $250K to $5M] does not require upfront due diligence fees.

Lower Fees Charged by SECC

Naturally, even SECC will have to charge some fees, but they are surprisingly low. All they will ask for is a site inspection fee or other forms of third-party appraisal, which will cost between $1,500 and $3,000. This is significantly below the costs charged by other lenders in California and only has to be paid once a letter of intent is available. Another important element is that the real estate loan application is now quicker and easier than ever before.

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Appraisals will still be needed, which is standard with bridge loans and other hard money loans. In this case, SECC has changed the standards again. So long as a report exists and it was issued within no more than nine months, they will accept it. This means that it is easier than before to supply the appraisal report, instead of having to apply for new ones all the time. Should a new appraisal be required, SECC wants to make sure that the cost of due diligence remains affordable for their clients. This means that it will never cost more than $2,500, as they have agreed to cap this price.

It is very common that borrowers struggle to get the costs required for applications. Many hard money lenders have exorbitant costs in place, running into the thousands of dollars, for appraisals, reports, and other out of pocket fees. If borrowers inquire with multiple lenders, they often have to pay these costs multiple times, even though the same report will be produced. In contrast, SECC feels that borrowing should be affordable for their clients, and they believe that the loan process itself should be sensible, even if the borrower is traditional in nature. Since its establishment, the South End Capital Corporation has set itself apart as a lender with a difference, and this is one of their clearest benefits.

South End Capital Corporation ‘SECC’, founded in 2009, is a nationwide, non-conforming lender (CA Finance Lenders License # 603 L334) providing commercial and investment residential real estate loans, bridge loans, fix and flip loans, subprime SBA loans, easy documentation business term loans, “No Credit Check” business lines of credit and merchant cash advance (MCA) consolidation loans. SECC offers excellent service, prompt responses and custom tailored financing.

SECC Named One of the Best Companies

In many different financial reviews, both national and state-wide specific to California, SECC has been named as one of the best companies around. Indeed, both TopTenReviews and Fit Small Business named them “top ten best” and “the best”, respectively. Their expertise in investment and commercial real estate loans, including subprime SBA loans, bridge loans, and many other types of loans, is what has set them apart in the industry. Indeed, they offer significant benefits that other lenders simply cannot seem to be able to meet.

SECC offers easy online applications, excellent service, prompt responses, generous compensation to approved partners, and custom-tailored loans.

Since the company was founded in 2009, they have always prided themselves on the fact that they work with non-traditional borrowers. They understand that the vast majority of people simply cannot meet the application criteria set by banks, or that the offerings of banks aren’t fit for purpose even if they do meet the necessary criteria. What also makes them unique is that they truly look at each case on an individual basis.

Through bridge loans, South End Capital offers a different way for you to get financing. This lender offers nationwide coverage as long as you secure the loan with a commercial or residential property. As long as you have everything filled out correctly on the loan application, you could be approved and have the loan closed in two to four weeks.

SECC Offers Loans to Those Turned Down by Banks

Through this work, they have been able to offer loans to people turned down not just by banks, but also by other types of investors, the ability to purchase real estate projects through the country. Although they are based in California, they offer help on properties in any other area of the country as well. In so doing, they have been able to corner a significant national market share, something that is worrisome for many other hard money lenders, who see in them a significant competition.

SECC was founded just as the Great Recession ended in 2009. Since then, they have been able to grow significantly and have now developed a national positive reputation. There are very few companies who can say the same, with most of them either having gone under during the Great Recession or having waited several years before forming. According to some financial experts, SECC has played an important role in rebuilding the country’s real estate market. Since borrowing the needed funds has become increasingly difficult since 2008, there has been a real need for hard money and other non-traditional lenders like SECC.

Advantages And Disadvantages Of Non-Traditional Financing For Farmers

It is becoming increasingly common for the agricultural sector to have to borrow if they are to stay in business. Unfortunately, for farmers, the economy doesn’t look good yet. In fact, the so-called Farm Slump is starting to become increasingly worse.

“Farmers are enduring a multiyear slump in crop and livestock prices that is pushing many to the financial brink. Since 2013, America’s farmers and ranchers have weathered a 45 percent drop in net farm income, the largest three-year drop since the start of the Great Depression.”

The added difficulty is that the financial sector is very much aware of these problems. As a result, banks are reluctant to work with farmers and give them the loans they so badly need. The alternative, therefore, is a hard money loan, but that comes with significant pros and cons.

Difficulty in Getting Loans from Banks

Alternative financing is becoming more and more popular. In itself, that isn’t anything new. Indeed, companies like LendingClub and Upstart have been around for many years and are proving to be very successful.

Upstart is the first lending platform to leverage artificial intelligence and machine learning to price credit and automate the borrowing process. Upstart has demonstrated unparalleled credit performance and the industry’s highest consumer ratings.

Rise in Non-Traditional Lenders

What is new, however, is that the agricultural industry is starting to look towards these types of lenders. Yet, it seems to be getting so popular so quickly, that some of these non-traditional lenders have started to focus specifically on farmers, or at least to develop products specifically for farmers. These include Conterra Asset Management, Ag Resource Management, Farmers Business Network, Farmland Partners, John Deere Financial, AgAmerica Lending, and CHS.

While it is certainly true that, for many farmers, non-traditional lending has provided a respite and an opportunity to stay in business, it is important that they fully understand the associated risks. On the other hand, financial experts agree that when times are tough, tough decisions have to be made. And since non-traditional lenders have far less stringent requirements for their borrowers, it may mean having to accept that risk. Essentially, these lenders do not look at the things that happened in the past, but consider what is likely to happen in the future instead.

Warning from Financial Experts

According to financial experts, farmers should learn to see these non-traditional lenders as solutions to very different problems. A bank loan, for instance, is usually taken out to support long term growth. A hard money loan, by contrast, should be taken out to rehabilitate operations so that they can get back on track. There are very big differences between traditional and hard money lenders, and that means the purpose of the money borrowed should also be different.

Alternative lenders often make capital available for a wider variety of business owners. There may be a minimum credit score, but it’s often lower than the bank’s requirement. Alternative lenders also might not ask for a business plan and only require you to have been in business for several months.

Things to Be Aware Of Regarding Hard Money Lenders

What seems clear is that a distressed farmer or agricultural business need to exert due diligence. When money is tight, it is all too easy for people to accept just about anything that is offered to them, even if that could lead them to even bigger problems later on. When farmers are desperate, they may forget to ask about the things that actually matter. This is why it is important that they seek sound financial advice first, and that this comes from a trusted, independent, third party source. Hard money loans have significant advantages but equally significant disadvantages. Which of the two will weigh heavier will depend entirely on the individual situation.

Additionally, there is always a concern of falling victim to a loan shark.

Loan sharks thrive where traditional banking is absent. They fill an unmet need, albeit often in a heartless, exploitative way.

Because the non-traditional lending space is the perfect environment for loan sharks, it is even more important to be careful. If a lender charges an upfront fee, that is a major red flag. And even if there appear to be no red flags, it is still a good idea for any deal to be properly reviewed by a legal expert. Since no hard money lender is federally regulated, it is all too easy to get things wrong.

It is also important to ask the right questions. Finding out how long the lender has been working in this manner, and why they agree to lend to someone that a bank would refuse, is important. So is finding out how the deals are structured. Similarly, the lender should be able to demonstrate past experience in the agricultural and farming industry in particular, as this shows that they, too, understand the risks they are getting involved in.

The Pros and Cons of Alternative Lending

If used properly, alternative lending is a great way for the agricultural sector to stay afloat. However, there are big risks associated with it, and only those who understand those risks should ever really consider taking out these loans. The main advantages include the fact that:

  • The loan is flexible. There are no complicated regulatory burdens to overcome, meaning they are flexible in their repayment terms, loan amount, acceptance criteria, and more.
  • The loans close very quickly, sometimes in as little as a few days.
  • It is possible to only pay interest, although those models are a little bit harder to find. It does leave you with a balloon payment at the end, however.
  • The lenders are experienced in dealing with distressed farmers and know whether or not there is a risk worth taking.

On the other hand, the disadvantages include the fact that:

  • The loans are generally short term. That said, some lenders will consider slightly longer terms if the borrower can demonstrate why this is needed.
  • The loans require a very strong exit strategy. Because they are so easy to obtain, it is equally easy to get trapped in them.
  • There is a lot of red tape, as a full paper trail of how the money is spent is generally required.
  • The loans are very expensive, with high interest rates.

Private Lenders and Hard Money Loans

Are you searching for a way to gather quick funds for a project or investment? You may need to turn to private lenders and take out a hard money loan to make that happen. Many people turn to hard money loans to help achieve their short – term goals or projects. Bloomberg’s Michael Sasso noted, “However, a for-profit trade group called the American Association of  Private Lenders estimates the number of hard money lenders and related  “private money” lenders at 8,300, or up almost 40% since 2016.”

What Are Hard Money Loans?

Hard money loans are secured based on real property assets. These types of loans are generally seen as last resort loans. These loans are primarily used for real estate transactions. Hard money loans are normally provided by private lenders or companies. This is different from typical loans that are provided by banks. These types of loans are taken out for a short amount of time and have higher costs associated with them. The terms of hard money loans are often negotiated between private lenders and borrowers.

How Do They Work?

The negotiated terms of hard money loans are based on the value of the property that is used as collateral. They are not normally based on the borrower’s credit or financial situation. The individuals and companies that lend hard money loans are capable of seeing the potential value in this type of risky investment. Many people who seek out hard money loans may be property investors who are searching for funds to remodel a house. They are investors who will remodel the house, or “flip” it, and resell it to make a profit. They hope to make enough money to pay back the loan and gain a profit from the collateral. Since the terms of these types of loans are so short, the borrower will attempt to complete the project within a year.

Hard money loans may be quite risky, but the higher risk is offset by some of the other values that they offer. Since borrowers intend to pay off the loan quickly, the terms are normally between one and three years. If the loans are paid off quickly, then the interest won’t accrue. This means more profit for the borrower.

Pros and Cons of Hard Money Loans

Hard money loans often have a higher cost to the borrower than traditional loans secured from banks. This is a reflection of the risk that the lender is taking. In return for this high cost, borrowers have quick access to capital, less strict approval processes, and sometimes flexible repayment plans.

Pros

One of the critical advantages of hard money loans is the less stringent approval process. For traditional loans, many banks will require the lender to provide proof of income, a credit check, and a low debt to income ratio. This can cause many potential borrowers to be declined in the process. Lenders of hard money loans can also assist the borrower in a quick approval process. They do not have to jump through the hoops that normal banks have to for approval.

Many lenders of asset-based loans do not worry as much about repayment. If a borrower defaults on the loan, then they may be able to still sell the collateral and make a profit. Lenders often take this into account and are flexible with the repayment schedule for hard money loans.

When a borrower applies for a loan through a bank the terms are normally set in stone. With hard money loans, the underwriting process is determined on a case by case basis. This allows for some negotiation between the borrower and the lender. Each side may be able to create a better lending contract for themselves.

Cons

Since the collateral of hard money loans is only the property itself they often have a low loan to value (LTV) ratio. The LTV is a term used by lenders to compare the value of the loan to the appraised value of the property. These low LTV loans are not always favorable to the borrower.

Another disadvantage of hard money loans is the high interest that accrues if the loan is not paid within a certain time period. According to the Pew Trust Foundation, the interest rates can be as high as 15 to 30%. Most borrowers can only make payments equal to about 5% interest on their loans.

Resources:

Sasso, Michael.  “Home-Flipping Trend Weakens as High-Interest Lenders Jump 40%” Bloomberg. https://www.bloomberg.com/news/articles/2019-06-12/high-interest-lenders-up-40-even-as-home-flipping-trend-weakens. Accessed 11 Oct 2019.

“From Payday to Small Installment Loans: Risks, opportunities, and policy proposals for successful markets” The Pew Charitable Trusts Foundation. Accessed 11 Oct 2019.

 

 

Hard Money Loans: Cracking the Hard Situations

When you’re dealing with hard situations and need help fast, a hard money bridge loan is the type of loan you may need. Many people are unaware of what a hard money bridge loan (1) is or how a hard money lender works. In its most basic terms, a hard money loan is a short-term loan secured by real estate. When you are racing against the clock to obtain a loan, hard money loans for your hard situations you can be approved sometimes in as little as 48 hours.

Length of Your Hard Money Loan

The length of your loan typically runs about twelve months, but lenders can extend it for two-five years in special cases. Significantly, using hard money loans for hard situations help crack difficult financial times.  The hard money loans are considered temporary and beneficial answers because you don’t have to pay the principal off throughout the life of the loan. You’re only paying the interest or the interest with limited principal through the loan’s life. When the loan term is over, you have a balloon payment due which includes whatever you have left on the hard money bridge loan to pay.

What makes hard money loans work, and be approved quickly, has everything to do with your property’s value. Hard money lenders may check your credit score, but they’re primarily concerned with the real estate property you’re putting up. Many hard money lenders use what’s called the loan-to-value ratio (LTV) to determine how much they will lend you.

How Fast are Hard Money Loan Lenders Growing?

It’s the LTV ratio that helps hard money lenders evaluate your loan risk. The more money they are going to lend you, the higher the hard lender’s risk. When you have assessed a higher risk based on your LTV ratio you will have to:

  • Pay a higher interest rate on your loan
  • You may be assessed additional costs, like fees or the lender may  need you to get mortgage insurance

But you won’t have any problem find a hard money loan lender. Hard money loan lenders are up 40% since 2016. There’s a lot of activity in the hard money loan markets. A hard money commercial loan lender knows each hard money loan will have different percentage rates based on how much the loan is and what their real estate property value is.

Crowdfunding companies are jumping on board to become hard money loan lenders too. They are loaning out millions of dollars at very high-interest rates which makes them a fortune. But that’s not the way the real hard money lenders like to do business. Most ethical, hard money lenders are in the business to help those who need quick loan approvals while making a reasonable profit for their business. Those hard money lenders approve their loans with a sense of fair play.

What are Hard Money Loans Used For?

Business is better than ever for hard loan lenders, but they try to “work with those who need them most.” This is usually in the low to middle housing and commercial markets. That’s the market where people who are hit with unexpected bills or events, don’t have the cushions of large savings accounts. Private money or hard money lending is also always good for certain populations or targeted groups like those who flip and flop houses. Hard money loans can be great for short-term or long-term investors who need their financing fast.

Many buy and hold investors will use hard money lending to buy and renovate properties before they refinance the homes through conventional loans. Another common hard money loan need is when long-term investors need to season their property. There are as many reasons as there are dollars to lend through hard money loans. But cracking the hard situations is done on a one-on-one case basis.

It’s not uncommon for your loan to be approved through a hard loan lender before you walk out the door. A prequalification can be faster than that. You can be prequalified in as little as three minutes. More importantly, you can get your funding, cash in hand in as quick as 10-15 days. It is the quick turnaround time, and the ability to take care of whatever emergency you’re dealing with that makes hard money loans so popular.

When You’re Ready

When your ready for your private money lender experience reach out to us. Find a hard money lender who has the expertise you need, with the interest rates and costs you can afford. You want your hard money lender to have the real estate knowledge needed to value your property fairly. Get a hard money loan with terms that help you deal with your hard situations. You can now take your first financial breath in a long time.

(1) https://www.fdic.gov/regulations/safety/manual/section3-2.pdf

Some Jargon To Know Regarding Hard Money Lending

If you are an investor and you want to start using hard money loans, you may feel like a fish out of water. It is very important that you research your options before choosing a hard money lender so that you get the best deal possible. During your research, you may come across a number of terms that you may not understand. The following looks at some of the most commonly used jargon in the industry.

1. Loan to Value

The loan to value ratio is something that is of importance in all types of loans.

The loan-to-value ratio (LTV ratio) is a lending risk assessment ratio that financial institutions and others lenders examine before approving a mortgage.

The higher the LTV, the greater the risk, meaning you may have to supply additional collateral.

2. Lien Position

If your investment fails and has to be liquidated, the lender wants to know where in the chain they are in terms of repayments. Ideally, they want the 1st lien position, which means that they have top priority. They may, however, agree to 2nd position as well.

3. Loan Parameters

The loan parameters are basically the acceptance criteria that the lender has put in place.

The factors used to determine whether or not to provide a loan to the borrower.

These parameters tend to be very different with hard money lenders than what they are with traditional financial institutions. Often, they will look at things such as your existing debts, your current credit score, and the type of collateral that you have to offer. Hard money lenders are private lenders, either individuals or groups of individuals, which means that they can set their own loan parameters as they see fit. Banks, by contrast, have virtually the same parameters across the board.

4. Bridge Loan

A bridge loan is a short term solution that covers the financial gap between two transactions. If you were to purchase a home and your old home hasn’t been sold yet, the bridge loan can cover those costs.

5. Rehab Loan

A rehab loan is an investment loan on properties in a state of disrepair. Generally speaking, traditional banks are not interested in providing rehab loans, which is why a hard money loan may be required. That is because private lenders are willing to look at the potential of a property, whereas traditional banks are only interested in what the property is currently worth. Rehab loans are heavily regulated if they are provided by the Federal Housing Administration (FHA).

The rules for an FHA 203(k) Rehab loan include restrictions on the type of property that can be rehabbed under this program, as well as requirements for the condition of properties that are eligible for the 203(k). Those restrictions include the number of units the property has–eligible homes may have one unit but no more than four, and the dwelling must have been completed for at least one year, according to FHA.gov.

6. Commercial Loans

These loans are used for equipment upgrades, new product lines, repairs, expansions, and so on. Banks generally don’t want to offer these because of the uncertainty of getting their money back, which is why private lenders often step in to fill the gap.

7. Construction Loans

These loans are offered to those who want to build a residential or commercial building. Banks are generally not interested in these properties because there is no proof of viability of the project. Hard money lenders, on the other hand, are willing to invest in these.

If you want to invest using private money, then understanding the above terms is very important because it will help you choose the most appropriate solution. Remember that hard money lenders want to make a profit, which means you must show them that you are an investment worth making and a risk worth taking.

Big Changes In Mortgages As A Result Of Private Lending

There are quite limited options available to people who own real estate if they wish to refurbish or if they want to purchase real estate that requires refurbishing. Mortgage lenders do not usually like to take a gamble on a property’s potential worth sometime in the future. The result is a growing demand for private lenders who would be happy to provide fix and flip loans, bridge loans, and refurbishment loans.

Many private lenders are people who were in the real estate investment market themselves and who realized that there is a gap in provision because they themselves experienced to difficulty of getting funds. What this means is that these lenders have a true understanding of the needs of the market and, therefore, have the potential to deliver a relevant and fit for purpose service. So popular are their services now that their market share seems to be growing rapidly.

In 2011, 50 percent of all new mortgage money was loaned by the three biggest banks in the United States: JPMorgan Chase, Bank of America and Wells Fargo. But by September 2016, the share of loans by these three big banks dropped to 21 percent.

Truly determining market share is difficult, however, because the private lending market is potentially huge. One way to look at it is by determining the number of properties that are refurbished and sold on. Another way is to simply determine the percentage of properties that are fix and flippers.

Fix and Flips Across the Nation

According to the latest 2016 Year-End U.S. Home Flipping Report, which looked at counties that are home to around 80% of the country’s population, 193,009 condos and single family homes were flipped in that year, defining a “flipped” property as one that is bought twice within a 12 month period.

ATTOM Data Solutions, curator of the nation’s largest fused property database, today released its 2016 Year-End U.S. Home Flipping Report, which shows that 193,009 single family homes and condos were flipped – sold in an arms-length transfer for the second time within a 12-month period – in 2016, up 3.1 percent from 2015 to the highest level since 2006, when 276,067 single family homes and condos were flipped.

It has also been estimated that if the other 20% of the market was included, there would be a total of 300,000 flipped properties in 2016. Considering that the average price is $189,000, the market is worth $56 billion. That is a huge amount of money, which certainly makes this market very interesting to lenders, particularly because they know that traditional banks aren’t interested in this. There is a huge opportunity for anyone who has the private funds available.

It has also been estimated that around a third of the flips in 2016 were financed. This means that around $17 billion was borrowed in 2016, a significant amount of money. While it is certainly true that determining exact market share is almost impossible, even accounting for standard deviation and mistakes, this share is significant.

Our industry’s uniqueness makes it challenging to analyze market share. We don’t have the standardization of the traditional mortgage market, where most deals flow through a handful of secondary market players who freely share loan-level, portfolio-level and industrywide data.

Unique Characteristics of the US Real Estate Market

The real estate market in this country continues to be unique. There are entire areas where there are far more home buyers than what there are properties for sale. Flippers must act very quickly if they are to find a deal, even if the kinds of properties they are interested in require substantial refurbishment. Unfortunately, traditional lenders, even if they are independent or a credit union, take several weeks before they can close on a loan, and those are weeks flippers simply do not have.

Flippers like to find tricky deals, although these are high risk, because they also have the potential for a huge payout. Flipping is not just about applying a new coat of paint and laying down some new flooring, which are things that anyone can do. True flippers purchase properties that are in a state of disrepair and require substantial modernization and renovation. They must also consider environmental problems, rewire the electrical system, put in new plumbing, and so on. These are the deals that flippers look for, because they are the deals that most people don’t want to take on. Naturally, the banks are reluctant to work with these properties, again increasing the need for a private lending alternative.

Hard Money Lenders Focus on Fix and Flip

The vast majority of hard money loans focus on fix and flip properties. However, others are used for sort term refinance, development, land acquisition, construction loans, and bridge loans. While this is not a huge portion of the overall hard money lending market, it is another piece of the overall financial pie. It looks like growth in the private lending market, therefore, will continue to grow, particularly in the suburban markets where there are many infill projects and revitalization projects.

So long as there are investors who are happy to diversify their portfolios and take risks because of the potential for a high return, private loans will continue to be available. So much so, in fact, that some are calling for private lending to become an official alternative to mortgages. Not just that, many financial advisors now consider it as an option to diversify the portfolio of their clients. Real estate has always been a solid investment, after all.

There is one caveat, however, and that is that many people now think that it is easy to fix and flip. There are many reality TV shows that make it look like the easiest and most fun job in the world. What these show fail to indicate, however, is that there are associated difficulties that can make a project turn sour. This has increased the risk for private lenders, who now have to spend slightly more time in determining whether a request for funds has been made by those who are experienced in this particular field and know what they are doing, rather than simply someone who has watched HGTV’s Fix or Flop series.

Laying Out The Myths And Facts Of Hard Money Loans

The hard money or private loan can, under the right circumstances, provide borrowers with an easy to obtain loan. Unsurprisingly, it is getting increasingly popular, with the lending environment in banks remaining very unfriendly to borrowers. Indeed, there are numerous reasons as to why these loans are now so common.

Recent years have seen major growth in the private capital market with more lenders offering hard money loans and more borrowers seeking them out as alternative financing. While there are many reasons for the growth in this segment of the real estate market, here are four main ones: Mutually beneficial to borrower and lender. Credit availability. Asset-based underwriting. Higher returns on investments.

Yet, despite the fact that there are so many clear benefits, people are still skeptical about these types of loans. One of the reasons for that is perhaps because these loans can be quite a bit riskier because they don’t have a standard application and acceptance process. They also have much higher rates of interest. Nevertheless, everything has its pros and cons and it is all about weighing these up. Let’s review some of the most common myths about hard money loans.

Myth 1 – A Private Loan Is an Expensive Loan

The fact is that these loans indeed have a higher price tag, but a loan is taken out for a purpose, which means that what really matters is the return on investment. When you consider that a traditional bank will only finance up to 65% of the total cost of the project, it means a borrower must still be able to raise at least 35%. This is known as the loan-to-cost (LTC) ratio.

The loan-to-cost (LTC) ratio is a metric used in commercial real estate construction used to compare the financing of a project as offered by a loan to the cost of building the project. The LTC ratio allows commercial real estate lenders to determine the risk of offering a construction loan.

With a hard money loan, borrowers could raise as much as 90% of the total cost of the project. This means that they have more disposable capital to work with. And although the interest rate is higher for a private loan, many have found that the return on investment is also higher.

Myth 2 – Hard Money Borrowers Lose a Lot of Control of the Property

It is quite common for those who decide to go the traditional lending route to have to bring in a partner in order to be able to finance their project, leading to them having to give up at least partial ownership of the property. Some, in fact, will require full ownership to be given up. With a hard money loan, the lender owns part of the project, not the actual property.

Myth 3 – It Is Much Easier to Deal with a Bank

This myth stems from the fact that banks have a standardized process. While this may be true, this also makes them highly rigid. Banks also generally do not provide any finance for development or construction loans at all.

The implementation of HVCRE (High Velocity Commercial Real Estate) rules that went into effect for the banks at the beginning of 2016 has made a large impact in the space. This causes acquisition, development and construction loans to be reported separately from other CRE loans and to be assigned higher risk weighting by the banks.

Banks have to stick to the HVCRE regulations and they are only allowed to provide loans according to the rules of the Federal Deposit Insurance Corp. Additionally, they underwrite based on the borrower’s income. Finally, they are concerned about exposure and will therefore often only work with borrowers they already know.

A hard money loan does not have to deal with this, which is one of the reasons why even residential borrowers are now considering these types of loans. They have a quick, streamlined process and generally complete the transaction within 30 days. In fact, underwriting often only takes 48 hours. Private loans are also far more flexible as their terms and conditions can be modified or altered as a project progresses.

LendingHome Disrupts The Market Of Private Lending

The fact that the world of hard money lending is growing is readily apparent. Exactly how much it is growing, however, has been somewhat of a surprise to many. In fact, the HousingWire Tech100 List has recently announced that lending is the new tech.

Applicants include heavy hitters and innovative disruptors…. But make no mistake, the name of the game in tech, these days, is lending, lending, lending.

The HousingWire Tech100 List looks at tech companies that have innovated the housing industry in this country. Usually, they recognize companies that create things such as smart devices for the home and green technologies. But now, they have recognized LendingHome as well, as the fastest-growing and largest online marketplace lender for mortgages in the country.

LendingHome is reimagining the mortgage process from the ground up by combining innovative technology with an experienced team. Our goal is to create a seamless, transparent process for homebuyers, real estate professionals, and investors.

One of the reasons why the private lender was recognized was because of its innovative automation and customer experience. They have created a loan process that is easier than ever to complete. In fact, 80% of applicants do not have to speak to LendingHome in person to have their loan processed. This means that people can finally apply for a mortgage in a way that is convenient to them without any interruptions, telephone calls, or meetings.

The founder and CEO of LendingHome had set forth a vision in that people should be able to have a roof over their head and live in their dream home without any difficulties. He expressed particular pride in his team and engineers, who have created a platform that has made it possible for the company’s vision to be turned into a reality. Having been recognized for this has been described as the icing on the cake.

Last year, LendingHome, based in San Francisco, California was recognized in 2017 by LendIt, who awarded CEO Matt Humphrey the title of ‘Executive of the Year’.

Given to the senior executive who has demonstrated outstanding leadership, integrity, performance and team-building within his or her company, while at the same time contributing to advancement of the industry.

The LendIt Fintech Industry Awards is a yearly competition and it has recognized LendingHome as part of their Top Real Estate Platform. This award showcased the company’s unique combination of responsiveness to stakeholders, product diversity, growth, volume, and performance.

LendingHome is also committed to continuing to innovate the market. They regularly participate in events that teach people about the fix and flip market. Mainly, however, co-founder Josh Stech has recognized that there is currently a degree of vulnerability in the world of private lending, and their company aimed to change this, something they have been committed to since 2013. Stech recognized that there is still a huge degree of fragmentation in the market and that the borrower experience, due to hidden fees and uncertain terms, is quite poor. Hence, LendingHome has developed a process in which technology and people are brought together to ensure borrowers have a more streamlined, secure, and user-friendly experience. Doing so has literally transformed the market as a whole.

LendingHome issued its first loan in the middle of 2014. Since then, they have funded over $2 billion mortgages. Their goal is to simplify the process and it seems they have been successful in doing this.

We’re on a mission to revolutionize the world of mortgages and put the power, and the keys, where they belong – in your hands.

The company uses a purpose-built, from scratch platform that no other lender in the country is currently able to offer.

The Real Deal With Hard Money Lenders

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.

Why Hard Money Is A Great Option For Investment Property Loans

Home flipping has become increasingly popular again over the past few years. Real estate investors shunned it as a result of the Great Recession, but they are now once again cautiously optimistic. In fact, according to a report by Attom Data Solutions, 2017 was an 11 year high.

ATTOM Data Solutions, curator of the nation’s premier property database, today released its Q4 and Year-End 2017 U.S. Home Flipping Report, which shows that 207,088 U.S. single family homes and condos were flipped in 2017, up 1 percent from the 204,167 home flips in 2016 to the highest level since 2006 — an 11-year high.

There Is Money to Be Made in Home Flipping

The total amount spent on flipping was $16.1 billion in that year. All real estate investors know that it can be very difficult to get a loan for an investment property and that it is vital that the loan is right. In fact, this can be the difference between failure and success. This is for anyone who wants to get involve in flipping properties or investing in these properties and become a landlord.

Many of us like the idea of making extra money. Who doesn’t want a little more cash in their pocket each month? Becoming a landlord is a nice way to earn some passive income, but not everyone can afford to buy a new place or purchase an apartment building.

There are numerous options available to you if you want to get a loan for an investment property. Traditional banks continue to be not cautious, however, which means you will have to do a little bit of research into other potential financing options. They include home improvement loans, home equity lines of credit (HELOC), cash out refinance options, partnerships, seller financing, FHA loans, personal loans, and hard money loans.

All About Hard Money Loans for Investment Properties

When people want to get a mortgage for an investment property, they often consider the traditional lenders, i.e. banks, first. However, since banks continue to decline applications for these types of properties, investors must become a little bit more creative. House Heroes is a Florida based house flipping startup business who is looking into hard money loans instead.

We’ve been buying property in Florida for over 5 years. We help homeowners sell in all sorts of situations: sell fast, major renovations, inherited house, relocation, foreclosure, eviction, late taxes.

Hard money loans are incredibly popular with home flippers. It means that money is borrowed from a business or individual and this money is used to fund a real estate investment. While a non-traditional type of loan, it is often possible to borrow more than the sale value of the property. This means that money remains available to upgrade the property, which in turn means an investor can sell it rapidly. Of course, this is a gamble as it is necessary for the property to then sell for more once it has been upgraded, eventually leaving the flipper with a profit. Ideally, the profit is then used to fund part of the next property, and so on.

However, it is common for hard money lenders to want to see an investor have some money to their name as well, usually at least 20% of what they hope to borrow. Additionally, in return for a quick and easy application process and a willingness to take risks, borrowers do have to pay a much higher interest for the loan. This is understandable, since a hard money loan is private money and people would only agree to put some of their money at risk if the gain is large enough. Additionally, provisions are in place that enable hard money lenders to rapidly repossess a property if payments aren’t made.