Hard money lenders are usually investors looking to put their money to work. This means that the relationship between you and a hard money lender is fundamentally different from the relationship between you and your bank. This difference in the relationship can have substantial benefits to you. Here are five reasons to choose hard money lenders over banks:
When you take out a mortgage from a bank, you gain a creditor. A bank’s sole concern when you apply for a loan is your creditworthiness and its sole interest in funding your project is to make sure it is repaid. A bank, in short, does not care if you make money, as long as it makes money. This is the reason that banks often accept loan-to-value ratios as high as 97%.
When you take out hard money loans from private money lenders, you gain a partner. Not literally, of course. But your hard money lender is going to look at your proposal very carefully to make sure that his or her money is safe and that your asset is sound. A hard money lender wants to make sure both of you make money.
In essence, hard money lenders are a backstop against bad deals. If you want to fix-and-flip an apartment building, hard money lenders are going to make sure you are not overpaying for the building because if you overpay, you may not make enough back to repay the loan. So, in this sense, both you and the hard money lender have the same interests and, thus, are partners in the business deal.
Build Up Relationship
Unless you are a millionaire, your bank will probably not offer you a private banker. And even if you have a private banker, your banker is bound by the company policies of an international corporation in what your banker can do for you. You could be the most loyal customer on the planet, but if corporate tells your banker not to do something, the banker’s hands are tied.
Hard money lenders, on the other hand, want to help you out if you have found a good business opportunity. As you build a track record of finding good opportunities, hard money lenders will want to build up a relationship with you so both of you can profit from your business acumen.
No Credit Check
A hard money loan is approved based on the merits of your proposal, not your credit report. This is important for establishing both the business relationship and the terms of the deal between you and the hard money lender. If you can meet the terms of the deal, which is typically a contribution of 30-40% of the purchase price, a hard money lender will not care whether you have perfect credit, no credit, or bad credit.
There are many reasons why hard money loans can be approved faster than bank loans. The primary reason is that hard money lenders are excited to put their money to work in your project. As a result, they can usually fund a loan in a matter of days rather than weeks.
Moreover, while banks have layers and layers of bureaucracy and risk managers to stop loans from being granted, hard money lenders usually have brokers out looking for good business deals. When the broker brings a good business deal to the hard money lender, only one approval is needed to move the loan forward.
Hard money lenders strive to preserve flexibility. For example, hard money loans are generally not available for owner-occupied buildings because those transactions need to comply with state and federal mortgage regulations. By foregoing the mortgage market, the hard money lender can be more flexible and creative in structuring hard money loans.
This flexibility works to your advantage because it gives a hard money lender the ability to tailor your loan to your particular project or needs. For example, if you are working on a project that is difficult to value, such as a damaged building, a hard money lender can work with you to determine a valuation that can get the project done.
Hard money lenders provide a different experience than a commercial bank from the nature of the relationship to the nature of the loan.