A hard money loan is a term for borrowing money without going through traditional lenders to buy real estate. The property serves as collateral for the loan, which is approved based on several other factors. When consumers are short on time or cannot get lender approval through the usual route of a traditional loan, hard money lenders may offer an alternative.
When done correctly, real estate investments can be very profitable if acquired at the right price and with every step and number properly managed, from buying to closing the restored property when it is sold. Given the laid back and peaceful lifestyle of Palm Beach, coupled with some of the best beaches in the country, this is without a doubt one of the best places to invest in real estate. Hard Money Loans in Palm Beach are ideal for those interested in real estate turnaround. Being an experienced pinball machine can give you an edge when it comes to getting a hard money loan. Alternatively, teaming up with an experienced investor can help you build your credibility and trust with a hard money lender. While it can be used to finance the purchase of a primary property, borrowers are strongly recommended to get a new loan as soon as possible.
This article will cover the basics of working with hard money lenders and the pros and cons of Palm Beach hard money loans.
Loan to value or LTV ratios are most often low with hard money lenders in Palm Beach, ranging from 50% to 70%. The loanable amount divided by the property’s value gives the ratio, which tells the lender if the loan is within the expected range. These ratios will show their ability to avoid incurring loan losses. Some lenders will assess the value after repair and lend money based on that value.
For the most part, hard money loans are asset based. Investors should recognize that property value is important to Palm Beach hard money lenders. Your credit history is not very relevant since these lenders take advantage of the high interest rates charged to borrowers with bad credit.
Borrowers looking for short term loans of up to 12 months can turn to Palm Beach hard money loans. In addition, some of these lenders may be prepared to finance the cost of renovations. Individuals or investment funds can finance these loans. However, borrowers will pay extra for these loans with down payments of 10%, 20% or even 30%. Hard money lenders are aware that borrowers generally have bad credit and have few other options for financing.
Borrowers will pay a much higher interest rate for Palm Beach hard money loans than traditional loans. Interest rates are often between 8% and 12%, as this type of loan is considered risky. Other fees associated with these loans include origination fees, which would be charged in points. Each point is equal to one percent of the loanable amount, and hard money loans can carry up to eight points. There will almost certainly be additional costs for appraisals and document processing, and insurance for builder risks will undoubtedly be necessary.
Prepayment penalties are not unusual when you get Palm Beach hard money loans to pay off a loan before the agreed terms. These loans are usually structured so that payments are applied first to interest and then to the principal amount as the loan nears completion. Hard money lenders take risks; however, their consequence for a failed loan is the foreclosure and sale of the property that has been pledged as collateral.
Advantages And Disadvantages Of Using Hard Money Loans In Palm Beach
The COVID-19 pandemic has amplified a demographic trend that has been occurring in Palm Beach in recent years. This has increased the attractiveness of the market for investors. Buyers with cash can get a substantial advantage when buying real estate. However, not everyone has easy access to cash, and this is where a hard money loan can help. Palm Beach hard money loans serve as a source of money to help you buy the property you want.
A hard money loan obtained from a local hard money lender, for example, can:
1. Remove the need to follow the traditional bank financing route.
Bank financing in Palm Beach can take up to three to five months.
2. Obtaining the approval for the loans is an easy process.
Due to the high demand and the abundance of offers available, it can be extremely difficult to work with Palm Beach banks when it comes to approving a loan. In addition, they frequently use a more rigorous approach when evaluating underwriting documents. The application and approval process for a hard money loan is significantly faster and much simpler.
3. Take advantage of local correction and reversal possibilities.
There is a significant benefit to repairing and returning properties in Palm Beach. Many of the potential buyers moving to the area are unaware of the area’s contractors and subcontractors, material suppliers, and the regulations needed to complete the restoration work. As a result, the cost of repair and turnaround in Palm Beach is higher than in other parts of Florida.
4. Funds are available for properties that require major repairs.
This distinguishes hard money loans from typical bank loans, as traditional banks would not lend on properties that need repair or are targets for repair and rollover.
1. The repayment period is shorter
A hard money loan is about getting financing quickly, repairing and rehabilitating real estate, and putting it back on the market. As a result, hard money loans generally have shorter repayment terms than traditional bank loans.
Borrowers will be forced to repay loans in months rather than years. This is usually not a problem unless the project is delayed.
2. Expensive compared to a traditional bank loan
Hard money loans carry a higher rate of interest than bank loans. While the interest rates on a bank loan are often tied to market rates, a private loan typically carries a rate up to ten percentage points higher than that of a bank loan. It is not a loan that you would like to have for an extended period. In addition, hard money loans come with additional fees, including origination fees, loan management fees, and closing costs.