Hard Money Construction Loans
Hard Money Construction Loans: What You Need to Know
Financing different projects sometimes can be extremely compelling, especially when it comes to financing for construction loans. Many lenders consider a construction loan a high-risk “blind” venture, as a kind of gambling. Because of this, they always review all project details before making a final funding decision. With this approach of traditional lenders, hours of constant talking with them and mountains of paperwork are inevitable.
If you are a borrower, this can be time-consuming and cost you more than you think for two reasons:
- Delaying your plans and schedules due to the time required by traditional lenders will cause problems and additional costs in your project
- Possibility of delayed deadlines and additional costs due to delays with financing
Traditional Lender Vs. Hard Money Construction Loans
Without getting into the state of the real estate market, one thing is always for sure – real estate investors need money to finance their projects. However, as the real estate market has changed in recent years, it becomes difficult for developers to access the money of traditional lenders, such as banks, in the short term. Documentation, paperwork and lengthy project evaluation are just some of the reasons why bank lending is difficult to obtain. It is a huge advantage of hard money loans because of the time of approval is very short. Hard money construction loans are a great alternative for all developers who need the financial resources to start a project, if they feel they are not suitable as a candidate for borrowing from traditional lenders, or if they need a quick financial injection.
Where Does The Money For Hard Money Loans Come From
As mentioned above, traditional loans for conventional construction are taken from institutions such as banks, while hard money loans are provided by investment groups or investors. The advantage of this form of lending is that it is not impeded by traditional banking procedures, which means that the loan will be granted much faster and also have greater flexibility regarding loan terms. Hard money constructions loans have a higher interest rate than the loans you can get at the bank, and they are secured with real estate property. You can expect a hard money loan lender to ask you for your investment in the project. The percentage, in this case, will depend on your experience and the project itself. You will likely need to invest between 10% and 20% of the total project cost. Bank approval can take weeks, even months. It is exactly why a hard money loan is a great thing. In a few days, you can get funds depending on the lender and your project. That is why reliable and reputable developers with excellent credit ratings often opt for hard money loans when they want to start or finish a project quickly.
If you are in the construction industry, one of the most important factors is the time when it comes to success.
Finding a loan in the short term can often be a crucial factor in whether you will take advantage of the situation or drop out of the game.