You’ve been thinking about hard money lenders. It’s not something you normally ponder. You were walking down the street when you came across the apartment building your parents used to own. It used to be bright and cheery with large windows and window box plants.
Now it’s windows were boarded up and the brick has so much grimed caked on it’s a totally different color.
“I’d love to save this place,” you think, “But don’t hard money lenders need a down payment?” If you’re looking into hard money lenders and are wondering about down payments, read on.
Whether or not you need a down payment depends on the hard money lender.
One reason people wonder about hard money lenders and down payments is banks. If you’ve ever worked with a bank to buy a home you know the drill well. Have at least 5% saved for a down payment, but try for 20%.
While this advice is true for a conventional loan, hard money lenders aren’t conventional. So do hard money lenders need a down payment?
In truth it depends on the lender. Some hard money lenders may want that 20% down, whole others may work primarily with collateral.
All lenders, bank or otherwise, want their money back. They wouldn’t be in business long if they loaned money without expecting everything to paid in full.
Banks ensure this by checking your credit score, what make at your job, and a zillion other factors. If all that seems kosher they’ll fund the loan.
Some hard money lenders work with collateral, namely-the place you’re wanting to buy. If you can’t pay the loan back the HML (hard money lender) will sell the property to get what they’re owed.
However, there are some hard money lenders that may want a down payment in addition to collateral.
Hard money lenders can take less than two weeks to fund loans.
“Okay,” you might be thinking. “Why bother with hard money lenders if I still need a down payment?” There a lot of reasons to do this
The first has to do with time. Let’s go back to the situation above. You want to fix and flip the apartment building your parents used to own. The seller is over the moon you’ll buy, but they need the money quick.
As we have said before, banks take 30-45 days to fund the loan. Hard money lenders take a fraction of that time, sometimes less than two weeks. With a hard money lender, you could be rolling in no time.
The second reason is risk. Banks want low-risk loans.
As a fix and flip investor, you know the apartment building has potential. You can see the golden opportunity within the cardboard windows and grimy exterior. You wouldn’t be buying it if you didn’t.
All banks see is the grime.
You could show them what you plan to do and which contractor plans to do it, but banks will still typically say no. That’s because they don’t know for sure if everything will go smoothly.
Hard money lenders think like you do. They know that what you’re buying is not what you’re selling. They know you’ll take the time to fix the property properly before putting it back on the market.
Another huge reason you should use hard money lenders is the terms.
Hard money lenders work in real estate, so the loans they fund work well for real estate investors. That’s why hard money loans only last 1-3 years. They know you’re fixing the property to flip it later for a profit. If you pay the loan off early, there’s no penalty.
Banks, however, don’t work like that. They want to live off the interest you pay them, so their loans are usually 15-30 years. If you pay the loan off early they may penalize you. Could you really afford that on top of everything else?
But the last and never least reason to use hard money is the down payment. We’ve said before that some hard money lenders want a down payment in addition to collateral. But if a hard money lender knows you and you’ve done great in the past, they may accept only the collateral.
For instance, let’s say the apartment flip went well. Everything was renovated on time and you sold it for major profit. Then you spot another property, then another. Each sells well.
If you use the same hard money lender each time they’ll know from their experience with you that you’re good for the money. Seeing your success first-hand they may be more willing to totally fund your next fix and flip project without a down payment.
If you’re interested in hard money lenders and want to know more, look no further than Gauntlet Funding.
Gauntlet Funding offers the most competitive rates in the market for prime borrowers with no prepayment penalties. We are an organized and transparent system that will get you funded in little time after you have undergone the approval process! Contact Gauntlet Funding today at (631) 465-2161.