Besides the apparent 35–40% equity cushion, the lender will want to see a detailed scope of work needed or described, with a cost analysis worksheet and timeline. The lender will use this as helpful information in releasing capital for rehabilitation purposes. Nothing ever goes as planned when performing a rehab; consequently the lender will want to see the borrowers expertise in performing or managing property repairs. The lender will release funds in draws and require an inspection to be made after each draw is complete. Typically, hard money lenders focus mostly on the asset value of the collateral and not the credit score as often.
At Channelside Mortgages LLC, we are a direct financier and have the ability to close loans within a few days after being given a complete loan package (any pertinent loan docs, income documentation, independent assessment, title commitment, contract, etc.). The typical loan takes about one or two weeks to close.
Usually hard money lenders in Tampa Florida implement a 3–6 month minimum interest prerequisite. For instance, with a 6 pre-payment fee, if the borrower were to repay the loan in 3 months, there would be 3 additional months of interest due. This requirement is put in place so the lender receives a little return for the time, hassle and allocation of its funds to a borrower. If the loan is repaid by the borrower after half a year, then no pre-payment fee will be issued. Here at Channelside Mortgages, we do not charge a prepayment penalty, but do have a 3 month interest minimum prerequisite.
Most hard money lenders charge a loan origination fee of 3% to 6% of the loan amount. Various fees for document preparation will subsequently charge by an attorney, assessment fees from a either completely independent appraiser or a Channelside home evaluation, and an application fee of $950. Channelside Mortgages will go above and beyond to give our professional flippers a detailed rehab estimate, as well as CMA included in our application process. We have even helped negotiate the contract price for our borrowers!!
A hard money loan is a loan given to a borrower from a lender based primarily on the worth of the collateralized asset that is underlying. Where asset based lenders aka hard money lenders focus primarily on the value of the asset used as collateral for the loan traditional banks and lenders focus chiefly on the credit and income of the borrower. Where traditional loans are generally for 15–20 year durations, hard money loans are used as a temporary alternative (1–3 years usually) as a bridge to acquire a rehab, or stabilize a commercial, retail, office, industrial, multi–family, or single family residential home.
There are many reasons why a borrower would choose to use private financing over a more economical traditional financing: (1) Quick Funding– conventional banks take the absolute minimum of 30- 45 days to finance an individual family residential loan, any where between 60–90 days to finance a commercial loan, and over 120 days to finance a development loan. Whereas, a hard money loan is generally funded within 7–14 days. (2) Property Demands Work– due to the conventional bank‘s very conservative underwriting guidelines, most will not lend on properties needing repair. Nonetheless, an exclusive lender will be happy to loan on a property that either lacks cash flow or necessitates physical advancements so long as the borrower has enough “skin in the game” (equity). Before it can be used for example, banks quite rarely fund a loan guaranteed by a property in need of repairs; hence the borrower will use a hard money lender rehabilitate and to buy the property, and then settlement the hard money loan with traditional funding. Another example would be a commercial property that has no tenants… a bank won’t loan until the property is leased up. Nonetheless, short-term financing will be provided by a private lender to the borrower to buy the property and lease it up. Once the property is stabilized for a certain time period, the hard money loan will be refinanced by a commercial lender with normal lending. (3) Not based entirely on credit or income– Traditional banks rely heavily on a borrower’s credit score, previous income, and ability to repay the debt. Consequently traditional banks for normal lending consistently turn down even quality borrowers such as for instance doctors, lawyers, and solicitors who have high incomes but also have a lot of debt. So, there is certainly an enormous importance of private lenders who look more at the value of the underlying asset compared to the amount of the loan versus the borrower’s credit history. We generally look for a 30%-50% LTV in our loans. What that means is we usually lend out 50-70% of the appraised value of the property to the borrower.
The rate by the lender is dependent on looking at a mix of variables for example: (1) loan to value ratio, (2) the property state and location, (3) borrower’s “skin in the game” (amount of cash equity in the property). At Channelside Mortgages typical rates are around 12%