Scenario: You need to borrow money on your commercial building but were turned down by your local bank. Now what? Is hard money the next step for you?
Hard money loans are often a last resort, but can be a great temporary solution for borrowers that are not bankable. If you find yourself in the position of needing a hard money loan, there are steps that you can take that will put you in a more favorable light with your local bank. The first step is to make sure your payments are on time to your private hard money lender; this will help re-establish a positive payment history. Secondly, keep cancelled checks of all of your monthly payments. Once your credit has been re-established, this will help the lender gauge your ability to repay the loan because private hard money lenders typically do not report your payment history to the credit bureaus.
Below are 5 distinguishing factors about hard money.
1. Distressed Financial Situation – Borrowers that are behind on their current mortgage, in foreclosure, or in bankruptcy may benefit from a hard money loan. It will help to get these problems in the past and on your way back to the local banks.
2. Asset- based – Most hard money lenders qualify the loan based on the value of the real estate that they are using for collateral. Credit scores, income, and other conventional lending criteria may not be used for a loan approval.
3. Costs – Hard money lenders may charge as much as 10 points, whereas most conventional lenders charge 1 point.
4. Term – Hard money loans are often interest only and short term with a 1 or 2 year balloon.
5. Rate – Hard money rates start in the mid to high double digits because they are taking on more risk with the borrower’s current situation.
Banks have the most favorable terms and rates for borrowers and usually approve the cream of the crop. These are borrowers with high credit scores, great liquidity and strong financials. Because the borrowers are stronger, the banks will often have higher LTVs than hard money or lenders like APEX.
APEX Mortgage Corp. is often used a stepping stone when making the move from hard money to local banks. We’re a non- conforming, direct commercial lender and fill a niche for self-employed borrowers that cannot get approved at local banks but may not need hard money.
Give us a call at 1-800-262-2739 to see if you qualify for a loan with APEX before making the jump to hard money.