This is why many real estate investors finance their investment properties with hard money loans or similar types of loans from private or direct lenders like Lima One Capital. Here is what you need to know about choosing a hard money lender.
Why Choose a Hard Money Loan?
Hard money loans are funded by private lenders rather than banks. Instead of basing the loan primarily on the borrower’s credit history and income level, a hard money lender will underwrite on the asset side, focusing on the property’s value as collateral. This means that they can close the loan faster and provide more flexibility, which is especially important if you are buying investment property in a competitive market. Here are some more reasons to choose a hard money loan over a traditional mortgage:
You can get approval faster: Because hard money lenders are more concerned with the value of the property than your credit history, you can usually get loan approval faster. As long as there is sufficient equity in ownership based on the value after repair (ARV), you have a good chance of being approved.
You can trade from a stronger position: A hard money lender is less likely to get financing at the last minute. If you are making your offer on the basis of a hard money loan, you may be able to use it as leverage in the transaction. You will also be able to negotiate a lower purchase price since your escrow period is shorter and you can close faster.
You can reinvest equity in new properties: Private lenders will often approve cash refinancing applications more easily than banks. Because they view the value of the property as collateral, they view the loan as a positive move rather than a risk. As an investor, you can use this equity to purchase additional properties.