Getting Cash Through Non-Traditional Lenders If Banks Won't Lend
Everybody is pretty much aware that the economy has changed and the way a lot of things have been done has changed. Banks no longer grant a loan like they did prior to the economic recession struck, and they take even longer to reach a decision than they did prior to. However, there are still ways to locate funds to complete investment type deals by using hard money lenders.
People who are very interested in providing money to support these types of transactions have been around for a very long time. They like to help in the purchasing of certain properties that are deemed risky by regular sources. This is either because of the property itself or the credit history of the person seeking funds.
However, it is not always related to credit or property type, sometimes a person finds an opportunity that they must react to quickly, and the standard banks are known for being slow in their deliberations. The one who found the property might be under pressure to obtain it as soon as possible in order to get the price they have been quoted. They will turn to non-traditional sources to help them take advantage of this situation.
When something like this arises, the people in need of cash will locate investors who might be interested in providing a hard money loan that will benefit both parties. The investors generally do not want provide all the funding for a project and they do expect repayment to happen within a short time period.
An example of something that they would be willing to underwrite is a property selling below value, but needs to be renovated to bring it up usable standards. The group lending the buyer money will ascertain what the true value of the property is and set a figure on what they will let the person borrow. If they can not reach an amicable agreement on the perceived value, then they will walk away and not lend any money at all.
One of the differences between these lending groups and the banks is the cost of borrowing the money. They are not looking to lend the money for more than six years in most cases, and the interest rate they charge can be in the neighborhood of 10 to 15 percent. This actually works in the one seeking the funds favor as it acts as an incentive to try to find a standard mortgage once the property is fixed up.
These lenders do not care about the credit worthiness of the borrower, because they will only supply funds to cover 60 to 70 percent of the loan to value equation and if the borrower defaults they will take ownership of the property. The loan to value works like this: if the properties listed value is $200,000 and the investors only supply 70 percent, that will come out to $140,000. The person borrowing the money will have to get the rest through other means. They often feel comfortable that they will not lose money since there is a buffer against that loss.
Although the economy has changed and getting cash is not as easy as it used to be, there are still avenue to explore to find what one may need to complete a real estate transaction. Hard money lenders can sometimes help when no one else can.