Why should borrowers choose private lenders over traditional banks? The short answer is that these lenders fill in the gaps where other lenders fail. Many individuals today have the ability and desire to invest in a new home, but they have an unproven track record.
Take, for example, the average millennial who is just now thinking about buying a first home at the age of 30-something, with limited credit and student loans. A typical bank may turn down these borrowers for the best possible options, but hard money lenders offer opportunities.
Versatility Is a Key Reason to Trust Hard Money Lenders
Perhaps one of the most important reasons to turn to private lenders is their unique ability to provide flexible, versatile funding for virtually any need. Whereas a traditional lender may need pages and pages of documentation and proof of a project’s viability, this is not necessarily the case with some private lenders. They have the means and the dedication to help consumers of all types to secure the type of financing they desire.
This includes construction loans to build expansive projects. It includes bridge loans that are typically hard to get otherwise but fill in the gap between projects and financing. Commercial loans are even more complex to today’s average buyer. Starting a business with a new loan for a building can seem out of reach and limiting. It’s hard to create a structure and build a business without access to necessary funding. Private mortgage lenders fill this gap, too.
Perhaps one of the most important reasons to turn to these lenders over others has to do with rehabs. Rehabs are the diamond-in-the-rough type of structure that has good bones but very little value at any given point. In some situations, they can become stunning new homes or commercial properties, but to make that possible, there’s the need to access the proper funding. Traditional banks tend to see just the “rough” and lack enough focus on the “diamond” to ensure rehabbers get the funds they need to transform these spaces.
Owner-occupied loans are another key area. Expanding a property can seem difficult in some situations. Banks typically have various federal and state regulations that must be met before they can lend. This complicates the process and slows it down. Private mortgage lenders free up that space considerably.
Private Lenders Provide Opportunities
It’s important to know that hard money lenders do not just give away findings and cash on hand. They still need documentation and proof of creditworthiness. They still need agreements on repayments and, in some cases, collateral to back up the investments they will make. This seems to be about in line with a traditional bank, but that is rarely the case. Rather, these lenders work closely with borrowers to provide them with more insight and opportunity into the options available to them. They also work to solve problems as they arise, working hand-in-hand with borrowers to help them to qualify for the funding they desire.
Whereas a traditional bank places restriction and documentation limitations on any loan, that is not the case with hard money lenders. There is an application process. There are a variety of steps that must happen before private lenders will lend. Yet, there are fewer restrictions and far more opportunities available to today’s borrower with these lenders than with traditional lending institutions. For those borrowers who may have been told “no” before, hard money lenders open the door to new potential and opportunities to create outstanding results for just about any type of project out there.
The investment in a new building requires careful planning and access to a high level of capital. Several funding options are available for this type of loan. Two common options include a bridge loan and a construction loan. Both have different purposes and benefits. Those considering these loans should think about the length of the project. Hard money lenders provide access to both options.
What Are Construction Loans From Private Lenders?
The goal of construction loans is to provide capital for the construction of a building. This includes small commercial, apartments, and single-family homes. Generally, these loans are designed to provide capital right away to fund the building process.
They do not remain on the property after the completion of the build. Typically, the property owner secures a home loan to cover this cost or another type of property loan.
These loans are available only after a construction timetable and a full detailed plan of the process is complete. There will always be the need to provide a detailed budget that outlines what the funds will be used for. It should include all aspects of the cost to construct the building. This includes all building materials, all appliances, all finishing, and all fixtures. It should also include labor costs.
There are a few things to know about this type of loan:
- They generally remain in place for a year or less.
- Some hard money construction loans can cover some of the lot purchase prices. Generally, the lot lien must be in hand prior to the construction loan’s funding.
- There is a down payment requirement in most cases. This loan to value amount depends on the individual circumstances of the loan as well as the lender’s preference.
- The fees and interest rates on these loans vary per project. However, they are typically competitive.
Keeping this in mind, other solutions are available. For example, for an owner-occupied loan on a new home, it may be possible to obtain new construction loans without any down payment. This is not always available, though some private lenders offer it.
What Are Bridge Loans from Private Lenders?
A bridge loan is a bit different but still offers the same qualifications and availability. The major difference here is that a bridge loan is very short term. They work to cover the gap that occurs between the time that the property buyer needs to make a purchase of the property and the time work on the property is complete.
For example, a bridge loan can help to provide more flexibility so that a tenant or a home buyer can be found. It allows for time for builders to make the required repairs and renovations necessary. This is short-term financing. There are a few things to keep in mind.
- Bridge loans are typically beneficial only for short periods of time under a few months.
- They are available as both commercial loans and residential loans.
- Most often, these loans have slightly higher interest rates than construction loans. However, they are rather easy to obtain for well-designed projects.
Hard money loans for these needs can be readily available often sooner than traditional loans. Additionally, other types of construction loans are available to meet specific goals. This includes residential rehab loans, fix and flip loans, distressed property loans, and cash-out refinances.
Generally, borrowers need to work closely with private loan lenders to ensure they have a clear plan forward in both options. Borrowers must be able to show them what the end goal is and how the home will be sold or how another loan will be obtained to repay these existing short-term options.
If you are planning to build a new home or perform extensive rehabilitation work on an existing home, a construction loan can help you get the money you need to complete the project. However, construction loans are different from a standard mortgage. If you are interested in this type of loan, you need to work with a lender who has experience with construction loans and can help you find the solution that is best for your needs. We have the experience and resources necessary to help you move through the application process quickly and secure the funding you need.
What Is a Construction Loan?
A construction loan is a loan you can use to build a new home or possible make renovations to an existing home. In most cases, a construction loan is a short-term loan with a maximum term of approximately one year. Once your project is complete, you can apply for a traditional mortgage to replace the construction loan if necessary. Construction loans are also considered hard money loans in most cases, which means they are asset-based loans with higher interest rates than a traditional mortgage. Interest rates may also be variable over the loan’s term.
Because construction loans are so different from other types of home financing, finding an experienced lender is essential. A lender with an in-depth understanding of construction loans can simplify this process and help you get the money you need with as little difficulty as possible.
Will I Be Approved?
When applying for hard money loans like a construction loan, you must provide a variety of information about your financial situation. Some of the factors we will consider when deciding whether to approve your application include:
- The current value of your property.
- The estimated value of the home after it is complete.
- Your income.
- Your credit history.
- The income and credit history of any co-borrowers.
Our construction loans have specific requirements you must meet in order to qualify. The exact requirements will depend on the specific type of financing you request. We will discuss all of these details with you as you prepare your application. After we pre-approve you for construction financing, we may request additional documentation before finalizing the loan.
Keep in mind that a construction loan will not act as a long-term mortgage. Once your construction project is complete, you may need to secure a traditional mortgage loan.
How Much Money Can I Borrow With a Construction Loan?
Construction loans are designed to help you complete a project, whether it be a renovation or a new home. For this reason, the amount of your construction loan will be higher than the property’s current appraised value, leaving you with a loan-to-value ratio higher than 100 percent. The exact amount you can borrow depends on the specifics of your intended project and your financial situation. Contact us today to learn more.
How Quickly Can I Be Approved?
If you are ready to begin a construction project, you will want to get a loan as quickly as possible. Fortunately, our company has significant experience providing construction loans to borrowers, and we can help you move through the application and approval process quickly and efficiently. Every borrower is different, but we will do our best to get you the money you need fast so you can start working on your new home.
We are proud to offer construction loans for all types of projects. Please contact us today to learn more about construction loans or to begin the application process.