Hard money tech can help beginner investors accumulate wealth as long as they understand when to use it and how to find private investors via hard money lenders.
There are situations when a national hard money lender could be a preferable choice; therefore, regional and nationwide lenders should not be ignored when searching for a loan. In practice, if the property is in California, make sure to include "hard money California lender" in your search. And better yet, include the city, e.g., "Hard money lenders in Los Angeles."
Yes. The short answer is definitely yes. This article will explain why lookign for hard money lenders near you is vital. Unlike ocnventional loans that could be arranged on your property by lenders located anywhere in the country, hard money loans are done mainly by local hard money lenders. In most cases, your chances of getting a hard money loan faster and with better terms are better with local lenders. There are situations when a national hard money lender could be a preferable choice; therefore, regional and nationwide lenders should not be ignored when searching for a loan. In practice, if the property is in California, make sure to include "hard money California lender" in your search. And better yet, include the city, e.g., "Hard money lenders in Los Angeles."
To decide when to shop locally or shop for lenders who lend nationwide, a better understanding of the funding
sources and how they work is required.
When underwriting a hard money loan, the equity in the property is determined by its LTV (Loan to Value).
As soon as the hard money lender receives an application from a borrower, he immediately checks the
property value online to verify its value.
The loan will be approved with sufficient equity (low LTV); without enough equity (too high LTV), it will be
denied.
The LTV (Loan to Value) is the loan amount and property value ratio. Most hard money lenders will lend up to 65% LTV. Few will go up to 75% LTV. in exceptional cases, and for Fix N' Flip loans, lenders and hard money brokers could go up to 80% LTV and 90% LTV. Even 100% LTV when investors consider future higher after-repair- value and or encumbering an additional property to secure the loan ( blanket loan).
Calculating Loan to Value (LTV)
Example of lenders calculating LTV:
The loan amount is $300,000 property value is $500,000, and the LTV is $300,000/ $500,000= 60%
If the loan amount requested is $400,00 for the same property, then $400,000/$500,000= 80%
Since LTV is the most critical aspect in approving any hard money loan, the hard money lender's main focus becomes evaluating the property value.
About 18 factors could determine the approval terms of a hard money loan, but the most important one is the LTV (Loan to Value). Most of the factors below will not affect whether or not the loan can be funded but only affect the loan approval rate & terms. Some characteristics and a combination of factors could increase or decrease the maximum LTV the lender is willing to lend.
Property Type
Location
Max LTV
Min Fico
property condition
Loan amount
Loan position
Income and expenses
income verification
cash out
Citizenship
Occupancy
Eligibility
Funding time
Reserves
other real estates
Bk and foreclosure
Purchase or refinance
To fully understand why searching for "hard money near me" is essential, you need to know how the three sources of funds play an important role in determining the loan request's approval faith. Hard money lenders have access to one or more of the following funding sources:
Private Investor
A group of private investors
Funding pool
Hard Money brokers can also refer the loan to another broker/ lender who gets the funds from the above three money sources.
Nationwide lenders and large companies normally use a funding pool to fund loans. The benefit of using the pool funds is that the lender already has the money ready to fund. The lender does not need to call on private investors individually for each loan to collect funds and wait for the individual private investor to review the loan and approve it. The disadvantage of using the pool funds is that the pool's lending guidelines are strict and unbendable. If the property or the borrower's qualification comes short of the strict underwriting guidelines, the loan will not be approved. Another disadvantage is that the pool can dry out, be out of funds, or shut down due to some economic downfall or management disputes. In 2020, many pool funds suspended all funding because of COVID-19 uncertainty. Not having the big guns competition made it a boon for many local mom-and-pop hard money brokers.
Local Brokers who work with local private investors have more leeway in underwriting the hard money loans. For example, after the loan request was declined three times by three prominent national hard money lenders, the borrower decided to call on a local hard money broker. The broker arranged for a private lender, who lives close to the borrower's property, to visit the property and inspect it. The private investor met the borrower face to face. After understanding the borrower's objective for the loan, the private investor agreed to fund the loan even though LTV was almost 75% and the borrower did not have perfect credit.
The benefit of working with groups of private investors is the ability to fund larger loans. Individual investors are often limited in their ability to fund large loans. To accomplish the task of financing, the broker combines funds from several investors who share the loan and divide the interest every month. The disadvantage of such an arrangement is that it can take a little longer to fund because each investor needs to agree and be in town to wire the money to the title company.
Some hard lenders have access to all three sources of funds. But still, that does not mean that these lenders can arrange a better loan than a local small-town hard money broker who may have the perfect private investor for the property and the borrower.
Not all private investors share the same level of enthusiasm to arrange loans. Availability of money, market conditions, and the lender's physical and emotional state always affect the loan approval's terms and speed.
A highly motivated lender who also has experience in the hard money can perform miracles on loans that otherwise doom to be declined by dormant lenders.
The lending industry is dynamic and fractionalized. Some old-time lenders who used to be aggressive five years ago are now dormant, and new lenders pop up left and right with new programs.
What does a borrower seeking hard money need to know?
Without the technology to monitor lenders' funding capabilities, it isn't easy to decide who to trust.
Lesson #1, it is impossible to find the best lender even if you apply and spend hundreds of hours with hundreds of lenders
Lesson #2: You need to inquire with many local lenders who are near you.
Lesson #3: You need to try national or regional lenders who may have better programs.
Lesson #4 Lendersa software searches and automatically requests quotes from all lenders in your local area and all the regional and national hard money lenders matching loan criteria to your loan request.
Find a list of lenders near me:
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