If you’re looking for ways to fund a real estate project, utilizing a hard money lender over a traditional bank loan could be the better option. Hard money lenders usually make it substantially easier and more convenient to obtain the cash needed for funding commercial real estate projects and therefore are a route often used by investors. However, before striking a deal with a hard money lender, an investor should always be prudent and ask the following three questions.
What are the Fees for Your Hard Money Loans?
There are a few different fees that are commonly charged by hard money lenders, some of which can be overlooked if the fine print is not read carefully enough, including points, interest, (origination) upfront fees, and prepayment penalty fees.
Points
Points are fees many hard money lenders charge just for providing the loan and range anywhere from 1-4% of the loan amount. 1 point = 1% of the loan amount.
Interest
The main tradeoff for the convenience of utilizing a hard money loan over a bank loan is a higher interest rate, usually ranging between 10-15%. The rates are interest-only and typically on the drawn balance, not the full loan. Check with your lender to make sure how they charge interest. The difference can cost you thousands of dollars.
Processing/ Other Fees
Lenders can charge processing or other fees that are in addition to the origination points. Pay attention to these fees and what they are covering.
Prepayment Penalty Fee
Some hard money lenders charge borrowers a prepayment penalty for paying the loan off early, however the majority do not because of the short-term nature of these types of loans.
What is the Process and Requirements for Applying?
While traditional bank loans require a plethora of paperwork and extensive verification like credit checks, hard money lenders usually provide the cash quickly and with minimal hassle. However, it’s important to set expectations and understand the process of obtaining the loan so you know:
Documentation Required
All hard money lenders have unique requirements for the documentation they want to see before providing a loan. This can include property photos, financial statements, proof of insurance, and a purchase contract.
Appraisal
Some hard money lenders may require a full appraisal of the property in order to validate its value. They will more often approve a loan subject to receipt of a satisfactory appraisal or valuation report.
How Quickly Funds Disbursed
Speed of funding is one of the main reasons investors elect to go with hard money over traditional financing, with many investors able to obtain funding within a week.
Closing Timeline
Hard money loans allow an investor to close much more quickly than a traditional bank loan, with closings of less than 10 days common.
Collateral vs Amount Borrowed
Hard money lenders usually provide some flexibility in the type of collateral they accept, but primarily the property itself is taken as the collateral. Once the collateral has been established, hard money lenders use the loan to value ratio to establish how much funding the investor can receive. Most hard money lenders are able to offer investors 65-75% of the collateral value, with the investor required to put down the additional capital to secure the property.
Why EMCAP Lending?
When these questions are directed at us at EMCAP Lending, we have the following answers readily available.
Fees?
The interest rate we charge is as little as 9.5%, charged every 30 days. Additionally, we do charge an origination fee to help support the processing and underwriting of the loan, but this amount can be as little as 2% and we even split the charge to half upfront and the other half at loan exit. These are the only fees you can expect from us!
Process?
Easily pre-qualify in minutes and we can put money in your hand in as little as two days! The documentation we need is the stated income and stated asset value, and appraisals are only needed for commercial property. Finally, if the title is clean, you can expect the property to close in 5-7 days.
Collateral/Loan to Value?
We accept first mortgage real estate as collateral only, while providing a generous 75% of the collateral value for funding.
Additional questions? Contact us today and get started on your path to wealth and security!
