According to FICO, approximately 43 million Americans have a credit score of 599 or less. Your credit report and history can have a significant impact on your financial life. Real estate investors with low credit ratings may find it hard to secure traditional mortgage loans to finance their business.
Hard money lenders are touted as a perfect alternative to banks and mortgage lenders, offering loan programs with less red tape. In some respect, hard money loans have similarities to conventional mortgages. In both, you may need to find a willing lender that can fund your loan while you repay it with interest over a predetermined term.
However, hard money lending may vary significantly from mortgage loans within the contract details and underwriting. With over 50 hard money lenders in Atlanta, GA, that you can borrow from, here are three ways that their lending may differ from traditional bank loans.
1. Less Bureaucratic Approval Process
The application process for hard money loans requires less documentation as compared to conventional loan programs. Your bank may be primarily concerned about your creditworthiness before approving your application. You may experience greater scrutiny on your credit score and income declarations.
While your credit history still matters to your hard money lender, it may not be the primary reason that the lender rejects your application. The property you wish to purchase or flip will be your collateral, making the private money lender focus more on its value than on your credit score.
The average American carries approximately $38,000 in debt, excluding mortgages. The massive debts result in high debt-to-income ratios that make banks reject loan applications. You may need to have a debt-to-income ratio of less than 45%.
2. Quicker Approvals and Funding
You can enjoy faster approvals for your hard money application than over conventional mortgage loans. Underwriting guidelines have become tighter, thanks to the passing of the Dodd-Frank Act. On average, mortgage loans may take 30 to 45 days before approval. With the fast-paced nature of the real estate industry, the waiting period can prove disastrous for your business.
Hard money lenders have less stringent measures, making loan approvals much faster. Besides, hard money loans specialize in asset financing, with the lenders acknowledging that time is of the essence for most real estate investors. Some private money companies can approve and fund your account within seven calendar days. For their favorite clients, the period may be shorter.
3. Flexible Loan Terms
Hard money loans are business products, often provided over short periods of between six to 12 months. However, it isn’t unusual to find a longer-term hard money program of up to 3 years. The structure of the loan allows you to monetize your asset, clear the debt and move on to the next project. Unlike conventional loans, you can enjoy greater flexibility on refinancing or restructuring the loan. You may not receive penalties for early pre-payment like you would in traditional loan programs.
Hard money lenders operate differently from mortgage companies or conventional banking systems. You can enjoy fast approvals and flexible loan terms with less stringent measures for approval. They can help you acquire new property. To access a hard money loan to expand your real estate business in Atlanta, GA, feel free to contact us today!