True Purpose Of Commercial Hard Money Loansby Olivia Clark Finance Manager
Also known as the bridge loan, the commercial hard money loans bridges you from temporary to a permanent investment situation. The primary goal is to bridge you from hard money situation to a current situation. In such case, you will be going from an expensive interest rate per month payment to a low payment like a commercial mortgage, or you plan to flip the property much quicker. Major different between conventional lenders and commercial hard money lenders are:
Upfront Costs: The minimum upfront costs in the conventional loans will be 1% of the loan amount. Whereas, in case of commercial hard money loan, you will be charged 2-5%, so that their money can be used.
Closing Time: It is the amount of time needed for closing the deal. Conventional loan type is more time consuming because of its procedure. Firstly, you need to underwrite the deal, go through every legal department, order inspections, get clearance from loan committee, and then put together their closing paperwork. All this procedure will consume 1 to 2 months of your time. In case of hard money loans, it will take only a week to put together the closing time paperwork. It is because the hard money lenders company is usually owned by one, two, or more rich individuals, who lend their money for commercial or residential real estate projects.
Interest Rates: The interest rates of conventional loans are lower as compared to hard money loans. The hard money loan interest rates can be three times higher as compared to traditional loan types.
Terms of Loan: The hard money loan terms are usually between 6 to 12 months, depending upon the amount you borrowed. It can be higher also if it's a more prominent real estate project. In case of a conventional loan, the loan term is minimum five years, which can go up to 30 years mark.
Borrower’s Credit: For a traditional lender, the credit of a borrower is very crucial. Residential hard money lenders can check for any significant flaws, but if the equity of the project or property is right, then you can easily qualify for a hard money loan, despite your low credit score.
Questions Related to Commercial Hard Money
1. How Can I get my loan approved?
You must have a proper exit strategy, which will involve everyone associated with the deal you agreed upon. The individuals will comprise of you, your lender, property manager, the person from whom you are borrowing money, and your mentor (not necessary). If all individuals agree upon exit strategy, then you can get approval for your loan and deal will be closed.
2. Is Credit Score Necessary?
Maybe or maybe not. Before qualifying you for the loan, a hard money lender looks the deal in three different ways. They look at the area, the property, and then they look at your record. If you have some foreclosures or bankruptcies, you will face difficulties for sure.
3. Is it necessary to put money down?
Yes, you will have to. The lender will not put 100% of his money for your project. Depending on your commercial hard money deal, you will have to put 20-40% of your money down. You can consider it as a down payment and the closing cost, which can be 6% of the loan.
The best thing about the commercial bridging loans is that they are always open for creative deals. By submitting the required down requirements, you can take full advantage of hard money loans and will complete your project without any hassle.
Created on May 31st 2018 01:55. Viewed 571 times.
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