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Private or hard money commercial lenders are different from banks and other conventional lenders. They provide short-term loans to short-term fix and long-term borrowers who want money for quick funding. Funded by private investors, private commercial lenders have loans for terms as short as 12 months that can be extended to a period of five years. If you are borrowing from such a lender, you are required to pay interest amount monthly and a huge sum at the end of your tenure. The amount may depend on the property’s value you provide as a collateral for the loan. It can be the one you already own or something that you are in the process of acquiring.
Private lenders usually take into consideration the value of a property before providing a loan. So,you need not worry if you have a low credit score, you can still get financing if you have a valuable property. Here are some things one must know before taking money from private lenders. Interest Rates As compared to conventional institutions, private commercial real estate lenders charge higher interest rates. This is because risks involved with hard money loans are higher than in traditional banks. Depending on the lender, interest rates may range anywhere between 10 to 15 percent. Another factor why the interest rates differ is the loan to value ratio. Type of Property Since people own different property types, there are specific regulations when borrowing from a conventional lender. However, that is not the case when applying for a hard money loan with a private commercial lender. You can use any property –land, multi-family residential property, family residential apartment, and even your business – as a collateral. Though most of the lenders specialize in all kinds of property, there are a few who might consider only a specific property. It is always better to ask upfront about what property they work with, to avoid future complications. Deals Hard money loans are ideal when borrowing money from banks is not an option, you do not have an ideal credit score, or in need of quick financing. You can approach private investment firms for land loans, construction loans, fix and flips, and even in times of bad credit scores. Choose from the deals that is best suited for your requirement. Always remember, before you borrow take a look at the quality of the private commercial lender and how the loan will fit into your financial strategy. Once these things are clear, you can apply and enjoy the benefit of receiving the money quickly.
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