Hard Money Loans Requirements
Conventional Lenders and Hard Money Lenders actually have surprisingly similar loan requirements. Both types of lenders rely heavily on the loan to value ratio, however, one con for conventional lenders is that they also go through borrowers’ personal financials including credit scores. While this may be a pro for hard money lenders as they do not ask for financials and credit scores, this extra security for conventional lenders allows them to typically lend up to a higher loan to value ratio than a hard money lender.
Timing
If you are looking to close a deal quickly, look no further than a hard money lender. They specialize in speed and can generally get deals closed in 30 days or less whereas a conventional lender needs at least 60 days to be able to close. A pro for hard money lenders.
Flexibility
As one might imagine, conventional lenders are governed by much stricter federal and state laws, as well as their corporate governance. We all know the saying, “think outside the box,” but this is exactly what a conventional lender cannot do. They work within specific boxes with specific criteria and the loans they do must be able to fit into one of the boxes. If not, they simply cannot proceed with the loan as they have very little flexibility.
This is not the case for hard money lenders, who have no such boxes. They are a lot more flexible when it comes to terms, carrying costs of the loan, and even what property types are acceptable to lend on. This is decidedly pro for hard money lenders.
Cost
Of course, this flexibility, speed and lack of personal financial data comes at a cost. One of the major cons with working with a hard money lender is that it can be very expensive. Most hard money lenders charge a fee of 2% of the total loan amount or more at the closing in addition to having interest rates that are double what a typical conventional lender will charge. This is why most hard money loans have 1-2 year terms. Who wants to be paying double the interest or a loan??
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