Loaned money can be used for most any purpose such as paying off higher interest rate loans or credit cards. Paying off a higher rate with a lower rate will save money. That’s easy to understand. Other benefits include starting a business or investing in additional real estate. If the business is successful or the investment property goes up in value or provides positive monthly cash flow then the use of a hard money loan has benefited the borrower.

Then there are those situations where the benefit is simply the receipt of the money needed to pay obligations or supplement living expenses when life gets a little rough. The use of a hard money loan to fill a money gap in life should only be considered as a short term solution since there is a monthly interest payment due that just might become an additional financial burden if monthly income is not increased or augmented to offset the costs associated with the loan. hard money loans

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Why Finance with a Hard Money Loan

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Why Finance with a Hard Money Loan

Hard Money Loan – There are some people who will never need to borrow against any property they own or finance a property they are planning to purchase with a hard money loan. This can be attributed to great credit and great income levels or never having the need to “get the money fast” due to circumstances requiring urgency or immediacy.

Then there are people that don’t have perfect credit or those that don’t have the monthly income needed to satisfy the typical approval profile of the big banks or institutional lenders. Their alternative is to seek a hard money loan.

What is a Hard Money Loan?

A hard money loan is an asset-based loan meaning the collateral for the loan is an asset, typically a property. A hard money loan is issued to borrowers who cannot qualify for a bank and/or institutional loan because of poor credit scores or lower-than-accepted monthly income levels. Hard money lenders, like Westar Lending Group, fill the void and are there to help with the assistance of private investors and private investment companies by their side.

While the interest rate and mortgage loan costs are typically higher for hard money loans (because of the higher risk involved in financing the loan) many of the negatives associated with them are offset with the benefits attributed to the use of the money borrowed.

The Benefits of Hard Money Loans Come From What You Do With The Money Borrowed

Loaned money can be used for most any purpose such as paying off higher interest rate loans or credit cards. Paying off a higher rate with a lower rate will save money. That’s easy to understand. Other benefits include starting a business or investing in additional real estate. If the business is successful or the investment property goes up in value or provides positive monthly cash flow then the use of a hard money loan has benefited the borrower.

Then there are those situations where the benefit is simply the receipt of the money needed to pay obligations or supplement living expenses when life gets a little rough. The use of a hard money loan to fill a money gap in life should only be considered as a short term solution since there is a monthly interest payment due that just might become an additional financial burden if monthly income is not increased or augmented to offset the costs associated with the loan.

Interest Rates On Hard Money Loans

Interest rates on hard money loans can be up to 10% higher than the rates offered by banks or institutional real estate lenders so it is advised to use the proceeds of the loan prudently and carefully.

One of the situations where a hard money loan is currently employed is where active buyers of distressed properties simply do not have the luxury of time to get a bank loan or the banks are not lending on speculative real estate investments or where there exists more potential deals than money possessed by the interested buyer. So often a buyer will purchase property “A” for cash but then property “B” comes along and the buyer doesn’t have enough money to the buy it but there appears to be enough potential profit to justify any financing costs. So the buyer will typically borrow money on property “A” and use the proceeds to purchase property “B”. The profit derived from property “B” more than offsets the costs of money from the hard money loan.

If property buyers are successful in the home buying business, they will eventually accumulate more money as more deals are consummated so the need for hard money will decline as they become more successful.

But sometimes in life opportunities just keep coming in, so the funny thing about money is you just never have enough.

When can a Private Equity Loan Help your Borrower

When can a Private Equity Loan Help your Borrower

 

While most Mortgage Brokers focus most of their time and energy originating “A” Paper Loans, situations do come up when even an “A” Paper Borrower might need a Private Equity Loan in order to “close the Deal”.

Most of the time this situation occurs when the “A” Paper Lender is dragging their feet or better yet going crazy with underwriting conditions that are imposed on the Mortgage Broker’s Borrower.

We have seen instance after instance where due to a small insignificant matter led an “A” Paper loan going down the drain.  In such a situation time might not be available to close escrow with another “A” Paper Lender in the time agreed to in the Purchase Contract with the Seller. Or in the case of a simple refinance where the Borrower needs funds for a Business or Investment purpose a Private Equity Loan can provide a Mortgage Broker’s Borrower the funds they need when the “A” Paper Lender proves difficult.

When might a Borrower Need a Private Equity Loan?

 Following are the most common situations where a Mortgage Broker should suggest a Private Equity Loan to their Borrowers:

 The Borrower has Credit Issues:

  • Current and past delinquent mortgages and consumer credit that are not acceptable to the big banks and other institutional lenders.

The Borrower has Income Issues:

  • This covers everything from limited income documentation to no income  documentation whatsoever, either way the big banks aren’t accepting the income documentation

There are Property Condition Issues: 

  • Deferred maintenance and contemplated property additions not allowed with traditional bank financing

In additional there are numerous types of properties that the big banks and institutional lenders will not often fund, some of which are:

  •  Churches
  •  Gas Stations
  •  Auto Repair Facilities
  •  Fix & Flip Transactions
  •  Vacant Land
  •  Unpermitted property additions

The Borrower Needs the money FAST: 

 When money is needed faster than the big banks or institutional lenders can provide – Hard Money Loans for Mortgage Brokers

A Mortgage Broker that offers a Private Equity Loan to their Borrowers can prove be a good business decision for both the Mortgage Broker and their Borrowers.

Mortgage Brokers should ALWAYS inform their Borrower/Clients that anytime a Private Equity Loan is obtained that a plan should be put in place to pay the loan off, by either refinancing when credit, income & the property is acceptable to an institutional lender or by simply selling the property.

Often times Borrowers contact our company directly or through their Mortgage Broker to obtain funds for a GOOD business or investment deal that would not remain available when allowing for Institutional Lender’s loan processing time frames.  We always suggest a plan to pay the loan off, whether that plan includes credit repair, income documentation matters or necessary improvements to the property’s condition.  Often times income documentation is a much harder challenge, since the underwriting requirements of institutional lenders often demand two years’ documentation of business income and often the same time frame for employed Borrowers.

This type of situation provides an opportunity for Mortgage Brokers to earn a commission from originating the Private Equity Loan and later another commission from originating the institutional refinance.

We’re currently offering Private Equity Financing at interest rates that range from 9% to 12%, with most of the loans our company funds having an interest rate of approximately 10%.

Whenever a Mortgage Broker has a Borrower who might need or benefit from obtaining a Private Equity Loan all the Mortgage Broker needs to do is provide us with the address and the “Deal Points” and our company is usually able to make a lending decision, which includes a proposed interest rate, loan terms together points and closing costs.

Submitting the Borrower’s information to our company can be done over the phone or through the Mortgage Broker Portal on our company’s secure website.

We always provide a preliminary underwriting response the day a Mortgage Broker submits the Borrower’s information to our company.

Private Equity Loans are very much like institutional loans but with only a few differences.  The primary differences being the approval requirements and the funding speed.  Private Equity Loans are much easier to get approved when credit or the condition of the property is an issue.

The typical time frame from Mortgage Broker loan submission to funding in typically “1” to “2” weeks.  There are instances when it takes longer but that is usually associated with title matters or matters not disclosed by the Borrower that later pop up at the last minute that requires additional time to resolve.

Our company is highly dedicated to serving the needs of the Mortgage Broker community and their Borrowers with Private Equity Financing.

Our company has a convenient online Broker portal just for Mortgage Brokers on our company’s website that makes it convenient to obtain a loan quote on a potential loan or to get a formal loan approval on a loan in process.   Our website is fully secure and is an accredited SSL domain.

If you are a Mortgage Broker and would like to obtain additional information on how a Private Equity Loan can be a valuable choice for both you and your Borrower, then please call our company at (888) 797-7970.