Do you have an ongoing construction project but need hard money loans to complete it? The construction niche often requires a significant amount of capital irrespective of the type of project. It is common for realtors to fall short of the required startup or continuation cost, and need loans to continue the project.
These construction delays can be avoided by taking out loans; however, it is difficult to obtain construction loans from traditional lenders. Hard money lenders are a suitable option to cover deficits in construction fees, and this post contains all you need to know about this construction loan.
What Is a Hard Money Loan?
A hard money loan, also called a short-term bridge loan or last resort loan, is a type of loan that is backed with properties or real estate. This type of loan is mainly for real estate-related projects such as new construction projects, rentals, flippers, commercial property development, and other related projects.
This type of loan greatly differs from traditional loans in terms of operation and the lender. Hard money loans are issued by individuals or companies instead of traditional financial institutions or online lenders. Also, this loan operates purely on properties and real estate.
This type of loan is designed for emergency cash needs during construction or related projects, and it is designed to skip most of the rigors and scrutiny that come with traditional construction loans.
How Does Hard Money Loan Work?
Hard money loans operate strictly on property or real estate. Unlike other forms of loans, you can only secure a hard money loan with properties. Construction lenders or hard money lenders are only interested in the value of properties you can use as backing or collateral.
Traditional lenders have lots of requirements such as credit score when considering loan applications. However, hard money lenders are only interested in the value of your collateral ( properties). The higher the value of your collateral property, the higher the amount they’re willing to loan.
The loose scrutiny and more direct form of contract is why most construction contractors readily go for hard money loans to complete or start new construction projects.
You can’t get a hard money loan from proper financial institutions like banks; instead, they are issued by private companies or individuals. This factor contributes to the nature of the loan and defines key aspects such as the interest rate, release duration, and other contract terms.
Features of Hard Money Loans
Here are some further insights into the workings of hard money loans.
Interest Rate
Hard money loans are high-risk especially for the lender because they don’t operate based on credit scores or other stringent requirements. Hence, the interest rate on this type of loan is quite high; it can range between 10% to 18%.
This high rate is mainly to protect the interest of the lender and to reduce the risk of the borrower faulting on the repayment duration. The longer the debt is owed, the larger the expected payback, and the higher the chances of losing the collateral to the lender.
Duration
The duration or loan term is the agreed timeframe for you to pay back the loan with interest. Hard money loans are not meant to be used for long-term projects, instead, they are a source of quick funding to be paid back as soon as possible.
Hard money loans have a short duration for payment to protect both the lender and the borrower. The borrower is protected such that they are not owed for long, and there is a lower risk of the borrower faulting the terms of the agreement. It also favors the borrower in that, there is less accumulation of interest due to the high rate.
Qualification and Selection
The selection or qualification standard for hard money loans is one of its advantages for construction projects. These hard money lenders have more acceptable standards and don’t require as much investigation as traditional lenders.
The approval of a hard money loan is based mainly on your available property for collateral, and its potential value. Most hard money lenders don’t concern themselves with credit scores or other legally binding documents that are characteristic of traditional loans. Their approval metrics are generally lenient and easy to pass.
Regulation and Standards
Hard money lenders are mostly private institutes or individuals, hence, they are not bound by most regulations that are common to traditional financial institutes. This can serve as an advantage or disadvantage depending on the situation.
Loan Payout
Another feature of a hard money loan is the fast payout. This type of loan has a fast payout from the time of application and approval. You can get funding within days of applying for a hard money loan, which is much faster than traditional loans which can take months of processing.
Can You Fund Construction With a Hard Money Loan?
Hard money loans are a great choice for funding construction projects. You can use hard money loans for funding new construction projects, purchasing real estate, refurbishing existing properties, a quick source of funding for emergency purposes, and much more. So yes, you can fund construction projects with this loan.
You don’t need to delay construction while waiting for approval or funding from traditional banks because they tend to take time. Most traditional banks don’t even give loans for ongoing projects due to uncertainty about the success of the project and the risk of making a loss. However, hard money lenders are not as strict.
Benefits of Funding Construction with Hard Money Loan
Here are some reasons why you should consider funding your construction project with a hard money loan.
Quick Start
Starting a new construction project requires a substantial amount of capital which may not be readily available. Furthermore, depending on conventional lenders, it will take you months after your application to get approved for funding, and there is also the chance of your request being denied.
However, hard money loans provide you with a quick source of funding to kick-start your construction project. Delaying the start of your project can affect you in different ways. For example, contractors can move on to other projects, the cost of construction can increase exponentially, you can actively lose other potential funding, and more.
Get a hard money loan to speed up the groundwork for your project, especially those of a time-sensitive nature. Furthermore, you can still get funding with a poor credit score, as long as you have properties of reasonable value or close to the required start-up cost for the new construction.
Fund Ongoing Projects
Using conventional loans to fund ongoing projects puts a lot of limitations on your spending. The funds available from conventional lenders have scheduled draw periods which can limit your purchasing power to particular periods However, hard money loans give you more free reign and accessible purchasing power that can be used to fund ongoing projects.
Fast Funding
Hard money loans are issued by private individuals and companies, hence they are more lenient with their loan approval process. You can quickly get access to funds compared to conventional lenders who take time to verify and scrutinize every detail on your application.
The average hard money lender gives out funds within days to a maximum of a month after your application, whole conventional lenders take at least months and sometimes years to approve a loan request.
Less Stringent
Traditional lenders are bound by different regulatory bodies and have to meet certain criteria to remain in operation. Hence, they have to be strict with their policies and need to vet each application judiciously.
However, hard money lenders operate as private individuals without external regulations and can relate based on discretion or the equivalent value of properties for collateral. This gives you a better chance of getting a loan and room for flexible agreements with the lenders.
How To Get a Hard Money Loan
Getting a hard money loan requires two main things: property for collateral and a trustworthy lender. Since these types of loans are issued by private bodies with little regulations, you must be careful when selecting a lender. We recommend researching and checking reviews of popular options or contacting bodies like Capital Max who have expert advice on hard money lenders.
After finding a suitable option, you will be required to fill out the loan application form which includes your plans and the amount you need. You will also need to include your portfolio of properties and the worth of your collateral.
Find The Perfect Hard Money Loan at Capital Max
Hard money loans are great options for quick funding needed for construction and other real estate projects. You can prevent delays in your construction project by contacting Capital Max. We are committed to helping you get the best hard money loan options with comfortable terms of contract.
Above all, our team of experts works round the clock to provide financial solutions for all your construction needs and equip you with information to secure your desired loan. Call us today to know more about our hard money loans and other financing options.