Hard money loans are a financing option for people who don’t want to or cannot use traditional loans. Private loans come from investors who are individuals or organizations willing to lend money based on the value of the property in question.
When you need a loan quickly and can’t wait an entire month for a bank to approve it or the bank refuses to lend you money, a hard money loan usually solves the problem. Moreover, it’s often the only option.
So, what are hard money loans, and how do they work in Miami? Let’s start from the beginning.
What Is Hard Money?
When you ask for a loan, most lenders will ask for proof that you can repay it. Traditional lenders are focused on your income and credit score, and they also like to see a clean history of responsible borrowing to approve a loan.
Opting for a traditional loan is a slow and complicated process, even with an excellent credit score and high income. Any negative item in your credit report may become a reason the bank rejects your application.
Private money lenders have a different approach. They will lend you money based on collateral, which is the property itself. Your ability to repay the loan isn’t crucial for approval, and neither is a perfect credit score.
If anything happens and you can’t repay the loan, the lender will sell the property to cover your cost. It is the main reason why the value of the property is far more important to hard money lenders than a borrower’s positive credit score.
In general, hard money loans are short-term, lasting from six months to up to five years. You wouldn’t want to hold on to a hard money loan much longer anyway because of the high-interest rates. Since private lenders take a significantly greater risk than traditional lenders, their interest rates are usually higher.
Advantages of Hard Money Loans
But why would you want to use a hard money loan if it’s expensive? This type of financing is perfect for several borrowers, including those who get refused a loan by a traditional bank. Another type of individuals who see great use of private loans is real estate investors who buy, repair, and sell properties.
Private lenders can approve and fund a loan very quickly, and they also usually offer a flexible structure. The most significant advantages of hard money loans include:
The lender is mostly focused on the value of the collateral and far less interested in the borrower’s current financial position. If the property’s value is high enough to cover the loan, a private lender won’t take months to search through your credit score, income, borrowing history, credit card payments, etc.
Once you establish contact with the lender, the application process usually moves very quickly. This is particularly important for real estate investors because it gives them a chance to close great deals on hot markets before anyone else.
The collateral is the star of every hard money loan. It is the most important asset the lender considers when deciding if they should approve a loan. If you’re asking for funds to buy a property, the lender will approve an amount that’s equal to the property’s worth.
In many cases, private lenders let you borrow money against a property that’s already in your possession. If that’s the situation, that property’s value will be what the lender wants to know.
Hard money agreements are far more flexible than bank loan or mortgage agreements. There is no standardized underwriting process, and the lender evaluates each application separately. You may be able to tweak some things to adjust the contract to your needs. A private lender is often an individual who’s willing to talk or a company with dedicated professionals. They are hardly ever a large corporation with firm policies.
Who Uses Hard Money Loans?
Private loans are perfect for people looking for short-term loans. Real estate investors are an excellent example of regular hard money loan users. They buy a property and hold on to it only long enough for its value to increase. They don’t buy residences to live in; they invest in properties they plan on fixing and selling within a year or so.
Once they sell the property, they repay the loan and are ready to take on another one. You may, however, use a hard money loan to buy a home, but you’ll need to consider a refinancing option as soon as a better one emerges.
How to Find Hard Money Lenders in Miami
There are many private lenders in Miami, which is why you should be careful in your research. Not all of them are flexible, or do they offer loans that make financial sense. Always connect with trusted lenders like RBI Mortgages with hundreds of satisfied clients under their wing. Choosing the right company to work with is of the essence when it comes to financing options.