Hard money borrowing is one of the simplest ways to finance real estate projects. Unlike traditional lenders, hard money lenders offer immediate money to real estate borrowers.
In most cases, borrowers can receive the loan in a week or less than 15 days. On the contrary, getting a bank loan approved may take months. Banks can take a lot of time verifying each borrower’s credit score, bank statements, etc.
Along with the longer approval period, borrowers are required to meet complex eligibility requirements set by banks. Hard money lenders are primarily interested in an applicant’s property value because it helps them determine the amount of loan they can give.
As mentioned above, bank loans have strict eligibility requirements and a longer approval time. If you are applying for a bank loan, you will be required to fill a long loan application, submit your personal and financial documents (bank statement, salary slip, etc.), as well make a deposit (after loan approval).
However, hard money loans are much easier to apply for. Depending on your lender, you may or may not need to fill long applications.
Hard money loans are not issued by banks but by private lenders. One of the main advantages of these loans is their short durations. In most cases, hard money loans have a 1 year duration. Along with the shorter terms, you can receive a hard money loan even with a poor credit score. As long as you are providing collateral to a lender, you can receive a hard money loan for financing any real estate property, such as a land, a commercial property, and more.
Hard money lenders take into account the value of a property for determining whether or not to make the loan.
These lenders are primarily concerned about the after repair-value. The after repair value is an estimate of how much property will cost after its renovation. In most cases, lenders offer 70 percent of the after repair-value.
However, despite its many benefits, hard money loans have higher interest rates than conventional bank loans. Typically, a borrower may have to pay a 7 percent interest rate.
Along with the monthly loan payments, hard money borrowers are required to make a balloon payment (due at the end of the loan term).
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