Hard Money Loans in Clearwater Florida & Tampa Bay Area
A Hard money loan, sometimes called a "private money loan" are funds lent from a private investor, not a bank. This type of loan is for:
- Investment Properties
- Commercial Properties
- Residential Rental Properties
Hard money loans CANNOT be on your primary residence. With some rare exceptions.
These private loans are in high demand today for a variety of reasons. Perhaps a property is available, but the interior or exterior is in rough shape so a conventional lender would not make the loan.
Or maybe an investor wants to purchase a piece of property now, but he already has a bunch of houses that are financed. In that case, no lender will loan to him because he has too many mortgages (more than 10).
Maybe a buyer wants to purchase a home as a rental, but they don't have any credit, or their credit is poor. Another scenario could be a commercial property owner is in trouble, but their credit score isn't the best. So even though they have equity in a property, the bank won't help them. So, getting cash out of a property is the perfect solution to solve their problem and that's where hard money loans come in to play.
The Cost of Hard Money Loans
Because this type of loan has more risk for the investor, hard money and private money loans
- Cost more and have
- Higher interest rates
But, they have their purpose and thus are becoming more and more in demand especially in and around Pinellas and Hillsborough Counties where property investing is booming. Sometimes it is effective to use a hard money loan for the short term, so that you can quickly move on a property, and then later down the line, refinance it. Some borrowers find that their offers are considered to be equal to a cash offer, when we substantiate your source of funds and even talk to the seller for you. There are two types of private money loans. The first is an institutional
Clearwater Mortgage may be able to help you with a private or hard money loan if the property IS NOT your primary residence.
Definition of Hard Money Loans
A hard money loan is a specific type of asset-based loan financing through which a borrower receives funds secured by the value of a parcel of real estate.
Hard money loans are typically issued at much higher interest rates than conventional commercial or residential property loans and are almost never issued by a commercial bank or other deposit institution.
They are similar to a bridge loan, which usually has some of the same criteria for lending as well as similar costs for the borrowers. The primary difference is that a bridge loan often refers to a commercial property or investment property that may be in transition and does not yet qualify for traditional financing.
Whereas hard money usually refers to not only an asset-based loan with a high-interest rate, but possibly a distressed financial situation, such as arrears on the existing mortgage, or where bankruptcy and foreclosure proceedings are occurring.
Many hard money mortgages are made by private investors, generally in their local areas. Clearwater Mortgage mainly does hard money lending throughout Clearwater and the Tampa Bay area.
Requirements For a Hard Money Loan
It used to be the credit score of the borrower was not significant, that is changing today. At Clearwater Mortgage we look at a few main things:
- Credit - although the credit requirements are not as strict as regular lending, we will still look at your credit scores and history.
- Income - we'd look for proof of income and that you could pay back the loan.
- Term - Any investor who's going to put out money is going to want 12 months' interest. So if they lend it out for 3 years and it is paid off 6 months later, they are going to want the other 6 months' interest when the loan is paid off. However, this is negotiable! Sometimes a slightly higher interest rate will earn you a shorter term. Beware of lenders who give a very low interest rate for 6 months and then charge points per month when you go over the term. You have to compare all factors when shopping for this type of loan. Some that are very "inexpensive" have been known to be the most expensive with all factors considered.
Equity or Down Payment
A private hard money loan is secured by the value of the collateral property. Typically, the biggest loan one can expect would be between 65% and 70% of the property value. However, there are special fix and flip programs where if you are experienced, you can get a higher percentage of the value, and even money to do renovations. We have all sorts of lenders. We match them to your needs and what you can qualify for.
For example, if the property is worth $100,000, the lender will lend $65,000 to $70,000 against it the property. This is not etched in stone. We have two types of sources for funds. Banks: guidelines etched in stone. Individual local investors: a bit more flexible.
This low loan to value (LTV) provides added security for the lender, in case the borrower does not pay, and they have to foreclose on the property. But, a private lender is not interested in taking back the property. He wants to earn interest on his money.
Clearwater Mortgage is the #1 mortgage lender in Pinellas County. Along with hard money loans, we also offer traditional financing including conventional loans, FHA loans, and VA loans.
Contact us today at 727-259-2900 to find out more about hard money loans.