Hard Money Lending vs. Traditional Lending
When it comes to financing, the terminologies itself can be confusing, leave alone the lending policies. You will come across terms like traditional loans, bridge loan, hard money loan, LTV, and lots more that may leave you confused and overwhelmed, especially if you are new to the finance market.
Knowing a few terms
It is therefore, necessary to be knowledgeable these terms and know the difference and usefulness about it so that you can make an informed decision.
Bridge loan: This does not need to be a hard money loan necessarily. Investors and borrowers can use it for a number of financing purposes. With that said,bridge lending market is still unhealthy as compared to other areas of financing. This is the primary reason why most of the investors and borrowers often turn towards the hard money lenders for their temporary financing requirements.
- A bridge loan is ideal for any short-term capital needs. For example, assume that you have found a heavily discounted foreclosed house and need to make some repairs in it before you turn it into a cashflowing rental property. In such a situation, you will not find a traditional long-term investment property mortgage easily. Therefore, you will need to find an alternative source for the loan, which is a bridge loan.
- A bridge loan is that which “bridges” the gap over the time between purchase of the asset and the time when you can put a permanent financing on it.
Traditionally, people mostly turn towards the banks orto other lines of credit for bridge financing. However, after the credit crunch and banking crisis, most of the banks pulled their limits back for the lines of credit. Therefore, people lost their “bridges.”
These limits are yet to be removed to restore things back to the levels that were common before the credit crunch. This has seriously affected the more compelling buying opportunities of today.
Hard money lenders: On the other hand, the hard money lenders typically make loans with the money that usually comes from the privateinvestors.
- These loans typically come with an origination fee as well as interest rates.
- These fees and rates are though reasonable, but are still much higher above the prevailing market rate for any normal long-term financing.
In other words, hard money loans are those that the investors normally want to pay off quickly so that they can refinance into more traditional loans.
Given the fact that private and online lenders such as Libertylending.com are generally less fussy about the deals on which they make their loans, they move with each deal much more quickly than the banks. They are typically interested in knowing whether or not they are going to get back their money after the stipulated time along with the predetermined interest. Therefore, the hard money lenders make outstanding bridge lenders.
Eventhough a private hard money loan is much more expensive as compared to the line of credit, it still makes sense to approach them when you need bridge financing. This is because they are now much more profitable than their counterparts in the past.
Hard money lenders are:
- A better source to the borrowers who do not have deep pockets to finance their needs
- Much more accessible and available than the commercial banks and
- The ones that provide unique execution benefits.
Therefore, when in need of finance, you should consider one or two reputable hard money lenders to take advantage of their relatively liberal lending policies.
LTV: An abbreviation for Loan to Value, this is the ratio that all money lenders are concerned of. This actually allow the lenders to determine how safe will their money be when they give it to a specific borrower, which is ideally the prime concern of the lenders. This also enables them to determine exactly how much to lend to a borrower so that they are able to pay it back without falling behind their repayment schedule.
Therefore, if you want a loan at any point of time, make sure that you manage your finance and budget wisely so that you get the maximum amount from the lender.
The value of hard money loans
In most of the times, the traditional money lenders make the prospective borrowers go though their seemingly endless lending process only to turndown the loan application in the end. This can happen even to the most creditworthy borrowers who have an apparently straightforward credit score, a good cash flow and income, and an excellent ROI.
Fortunately, this alternative source for money provides them an easy access to money in need. Therefore, the value of hard money loans and lenders cannot be overlooked in today’s finance market.
- They are an excellent option to have non-traditional loans.
- Individuals andcompanies can have numerous decided advantages trough hem over banks and other traditional money lending institutions.
Most of the hard money lenders are actively involved in a business themselves and therefore they understand any business in general. For this reason, they can deduce the particulars of any unusual aspects or the potentially lucrative opportunity in a deal.
In addition to their knowledge, there are several other qualities in them that make them more attractive option to the borrowers than the traditional banks. It is these qualities in them that helps the borrowers to solidifythe details so that they can get a more attractive deal. A few of these useful qualities are:
- Versatility: They are not limited to any fixed lending model and in most of the times are intrigued and looking for new and potentially more lucrative investment strategy.
- Responsive: They avoid the tedious and time-consuming process that is usually associated with traditional lending. Since it is a single person making the lending decision, it is timely and faster.
If you are concerned with the security aspect then be informed that the hard money lenders are as investigated, committed, documented and secured as the traditional banks. Therefore, rest assured that your interests will be securely protected according to the fullest level of the law.