No matter what condition the real estate market is in, one thing stays the same – real estate investors have to have the cash to fund their projects. Plus, with the changes in the real estate marketplace over time, it has become more and more challenging for developers to receive the funds needed through traditional lenders in a timely way. More and more documentation and paperwork are just a few of the reasons for the delay in on-time loan closings. That is where hard money loans may make a difference. See more about the benefits of hard money lenders for construction purposes:
Use hard money lenders if your project has a tight deadline
Hard money lenders are a critical alternative for developers needing the money to get their new project up and running but might not be a great candidate for a loan from a traditional lender. In addition, they may be a good solution to consider if the project has certain deadlines to meet and you cannot or do not want to wait around for the probability of a government loan program or conventional loan.
Offer more flexibility
Conventional construction loans are awarded by traditional lending organizations such as banks, but hard money loans are awarded by hard money lenders or investment groups and investors. This type of lending isn’t subject to traditional banking requirements, allowing lenders to have more flexibility for the terms of the loan they receive.
Loans from hard money lenders are secured by the real estate being bought and frequently charge greater interest rates than a loan you might obtain from a bank. But any type of construction loan will be more expensive than loans on existing properties.
Also, hard money lenders will ask that you invest your own capital within the construction project. What percentage it’ll be varies based upon the construction project, in addition to your experience. But you’ll probably need to invest a minimum of 10 % – 20 percent of the costs of the construction project.
Close in a matter of days
Loan approval for a project may take several weeks to be approved by a bank, but it might take months for approval if you opt to try HUD financing programs. Here is where hard money programs actually shine – you might close in just a matter of days depending on your lender and project. Due to this, even developers who have a solid financial background and accessibility to traditional loans occasionally choose hard money loans to fund their projects if they wish to get them up and running and done swiftly.
In the end, the proper kind of loan for you is going to depend on what your situation is, what your priorities are, and the construction project you’re considering. Determining what type of financing you need and which terms work better for your situation is important. After you weigh the details of this form of the construction loan, think about which loan is going to provide you the terms and flexibility needed to get your construction project off of the ground.