What the Consumer Needs to Know About Hard Money Lenders

Hard money lenders have always existed in our society, but these alternative loans have seen an influx of business recently. The spike in these alternative loans can best be attributed to the economic crisis of 2009. Traditional avenues like banks became keenly aware of the amount of risk they were taking after the economic collapse. This made it harder for people with poor or no credit to obtain money from these traditional sources. Let’s go over everything that the consumer needs to know about these alternative sources of credit.

Shorter Period, Higher Interest Rates, and Fast Cash

These deals are fabulous as short-term options. If you need cash and you need it now, this is your best option. A banking institution will not be able to provide you with the financing quickly. They will take their time and review your credit history and perhaps your background. However, interest rates on cash from a bank are a lot lower, and the terms of the deal are generally set for a longer period of time. If you are looking for a long-term situation, you probably do not want to choose a hard money lender. The terms of the deal will include high interest rates, so over a longer period of time, they are not worth it.

Little to No Credit is OK

You can secure one of these deals without very much or any credit at all. Hard money lenders will use your assets and properties as collateral for your debt, so credit history means little to them. This business practice puts a large amount of risk on their shoulders, and this is why the interest rates on these deals are so high. If you’ve got solid assets to back yourself with and you know your financial needs are only temporary, these are great loans to get.

More Business-Oriented Than Banking Institutions

With hard money lenders, you may find yourself getting better terms or more money based on what purposes you have in mind for the cash. These private lenders are not bound by the same stringent rules as bankers. If you have a good idea or solid investment plans for the loan you are receiving, you may find yourself getting more cash than you can back with assets. Small business owners may find that it is easier to get off the ground with these business-minded people rather than with traditional bank loans. The important thing to remember is that there are a lot of opportunities out there, and it would be wise to completely weigh all of your options before you lock yourself into a loan agreement of any kind.

There is more inherent risk involved with hard money lenders, but they provide many more chances for opportunity as well. Taking the safest route isn’t always the right way to go about things. This country was founded by people who took chances. The key is to ensure that you are making educated decisions about how much risk you take on.

How To Apply For A Personal Loan

Personal loans are loans granted to a person by a financial lending institution. The repayment of the loan is agreed upon by the lender and recipient upon approval of the loan. These loans are different than vehicle or home loans because the amount borrowed is generally much lower. When applying for a personal loan, the financial institution will look into several different factors to decide if a person qualifies. The lender will considers a persons credit score, unsecured debt, current bills, income, and how much the asking amount is for.

A persons credit score is a number lenders will use for any loan. This number fluctuates when businesses report the repayment status of financial obligations. Medical bills, credit cards, living expenses, and other bills a person may have will report to the credit score. When a person repays on time without any delinquencies or if they are delinquent on payment it will reflect. If a person files bankruptcy, it will reflect in the credit score report. The lending institutions generally require the credit score to be a certain number before they even consider a loan granted. The credit score will also determine if the person needs a cosigner for the loan.

Unsecured debt is any debt with a fluctuating interest rate. This could qualify as credit cards or balloon payments on a vehicle or house loan. Unsecured debts are a dangerous factor in the equation because they are at risk of getting out of control and could prevent the lender from receiving their monthly payment. Before applying for a personal loan, it is best to minimize as much unsecured debt as possible. When the debt is minimized it will increase your credit score and reduce a persons monthly budget giving them a better chance of being approved for the loan requested.

Lender’s take into consideration a persons current living expenses. These living expenses include monthly rent or house payment, utilities, food, vehicle payment, insurance, and gas. All of these expenses are required to live on a daily basis. The lender will take into consideration if there is roommates or if the person pays the entirety. Lender’s also prefer to see these expenses combined leave the person with a certain percentage of your income free to ensure the loan repayment will be done successfully. If the living expenses are a majority of the income, it is best the borrower try and find a supplemental job to offset the formula the lender uses to determine if they qualify for a loan.

A person must bring proof of income when applying for a loan. Generally the lender will request a minimum of three months proof. The lender will consider the longevity at the employment position, how much a person makes hourly or salary, and if there are any court ordered garnishments taken out of the checks. The lender will calculate your income into the equation and also take into consideration if a person already has some money in the bank. The lender likes to a there is some money saved up for emergencies. With a saving account built up there is a less likely chance of a person defaulting on the loan.

Once the information is presented to the lender it will be sent over to the underwriter’s department to make the final determination if the person qualifies. If needed, the underwriter’s will then request any additional information. Upon approval is when the person will sign the financial contract with the lender and the money is received. At anytime during the signing process and after the borrower is welcome to call the financial institution if they have questions.

Lending Or Borrowing Money With A Friend Or Family Member

Have you ever had to turn to a family member of friend when in a financial bind? It’s estimated that a whopping $89 billion is exchanged every year in the U.S. between family members and friends.While it’s nice to help out someone close to us, or be on the receiving end of that help, it can also turn into a situation where a relationship goes awry. Some financial experts say that you should never enter into financial arrangement with someone you are close to. While others say if you do, you should go ahead with caution and take certain steps to avoid turning a friendly money transaction into the loss of a relationship.

If considering lending to a loved one or friend, be sure not to loan more than you can afford to lose. In other words, don’t put yourself out for what you can’t handle missing should you not be repaid. Loaning money to anyone, no matter how close you are to them, is a gamble. Don’t put yourself in a place where you can’t afford the loss should you be out what you loan.

Consider why the person you are loaning to needs the money. If chronically in debt or searching for solutions to money problems, you aren’t doing them a favor by lending them money. Poor spending decisions and budgeting habits don’t go away overnight. A loan from you will not ease their money troubles either. If you really want to help them, consider using that money to get them financial/debt counseling.

Put your financial agreement in writing. It may seem awkward but it is wise to do. It’s not a guarantee that you will be repaid but it will give you some sort of legal standing should your borrower go into default. There are many websites that allow you to download promissory note forms for free. Fill out the paperwork, have both lender and borrower sign, and then get the paperwork signed by a notary to make it legal. Lending between friends shouldn’t discount the need for something in writing.

If the shoe is on the other foot, and you’re considering borrowing from a friend or family member, there are still several things you should consider. First, consider other options first. Tighten your purse straps, cut unnecessary expenses, or ask about working overtime. Find ways to solve the problem first before you approach someone close to you for a loan.

If you do borrow, pay your lender interest. That’s right! Treat the loan like one from a bank. Offer at least a 2% interest rate on repayment. The person you are borrowing from is obviously very gracious. Be gracious back and pay them for loaning you money. Dont’ negotiate either! In other words, if they won’t loan you as much as you want or are asking for a higher interest rate, either accept the terms or your loan or find somewhere else to get the cash you need. You are in no place to negotiate!

As with any other financial agreement you enter into, you should document your loan. While it’s up to the lender to decide if they want to create a legal document with the terms of your loan, at least you should create a spreadsheet with the amount you are borrowing, how much your payments will be and on what dates you will make those payments. This will help you keep track of what you pay as well as letting your lender know when the loan will be repaid.

Take time to really consider whether you want to have a financial agreement with someone who is important to you. No matter how badly you need the cash, it isn’t worth losing a good friend or creating a riff with a family member.

The Pluses and Minuses of Hard Money Loans

Hard money loans are an alternative form of getting money that many people are unaware of. When you need a loan in a hurry and are shunned by your bank or credit union because of your low credit or for other reasons, hard money lenders may lend you the required sum for as long as 10 years (or longer depending on circumstances). They look at your assets not your credit; therefore hard money lenders may be an alternative to consider. Here are some pluses and minuses of hard money loans

Pluses of Hard Money Loans

1. Rapid Process – Banks take 60 days at least to consummate the process. The typical hard money lender will hand you the loan within 1-2 days. Local lenders who know you may even give you the funds that same day. This works out particularly well for you if you need the money for some fast purchases, for emergency need, or for other situations such as when you want to move on with construction in order to sell your property. It also helps you impress the buyer when you want to jump in front of a bidding queue to land a certain property.

2. Less paperwork – Banks and traditional lending institutions tend to haul you through a grueling underwriting process that involves signing lengthy and complex forms and then waiting at least a month to see if you’ve been approved. Hard money lenders waive that. Each has his, or her, own system, and each deals with borrowers individually. Borrowers, therefore, tend to sign only a few forms. Lenders will ask you a few questions, and may look into your credit history. The Dodd-Frank Act of 2010 states that lenders have to make sure that borrowers can pay; that they are not charged humongous rates of interest; and that they are charged no more than two pre-payments (depending on circumstances). Lenders evaluate each application differently and make their conclusions based on your property value rather than on your credit. So even if you have bad credit, you may be able to get your hands on a hard money loan. The lender focuses more on the value of your property than on your credit.

3. Flexible Terms – Banks may demand regular payments. The lender goes soft with you and often provides you with flexible loan repayment terms. (Again, this depends on the specific lender). So, if times are tough you can get by with only paying interest each month or with only paying the balloon repayment at the end. This makes it easier for you in the long run instead of causing you to make a hefty payment each month.

Minuses of Hard Money Loans

1. High Interest – Hard money lenders charge triple the amount of banks – and sometimes even more than that. Lenders can sometimes be capricious in their interest amounts, so it is important to shop around. Some lenders may offer comparatively reasonable rates, but we suggest that you negotiate since lenders know that they are your last resource and they may charge accordingly. Some of the states’ usury laws, such as those of Tennessee and New Jersey, prohibit hard money lenders from invoking excessive interest. Residential borrowers have recourse to further protection under Consumer regulations and the Dodd-Frank Act. If you’re a commercial borrower, you need to be more wary since loan terms are more aggressive and you receive less protection.

2. Low loan-to-value ratios – The loan-to-value ratio is how lenders determine how much money you’re going to get. For example, with a loan-to-value ratio of 70%, the lender will give you $70,000 for a $100,000 piece of property. Lenders usually give only 60% or 50% of your required amount which means that you’ll have to dig up the rest from somewhere else.

3. Hard to locate – An honest and efficient lender may be hard to locate. You can find hordes of money lenders online but each lends only to one or several states and are certified to lend to the states that they deal with. You may have few or none of the lenders that you prefer (or that will service your type of loan) in your region and you may have to travel to get the services that you want. In all cases, make sure that the lender carries licensing from the National Mortgage Licensing System (NMLS) and through her regulatory state agency.

In short…

Hard money loans may be wonderful for you when you need them in a crunch and can’t get the money from anywhere else. They have relaxed approval standards, are fast to get, and involve meager paperwork. On the other hand, they have a low loan-to-value ratio and a high interest rate. If you have good credit, you may be better off with the traditional loan. Consider hard money only if you have a short term pressing need with few or no alternatives.