{"id":2583,"date":"2020-09-21T22:30:58","date_gmt":"2020-09-21T22:30:58","guid":{"rendered":"https:\/\/www.coastalcapital.com\/?p=2583"},"modified":"2021-12-17T21:49:23","modified_gmt":"2021-12-17T21:49:23","slug":"why-a-hard-money-loan-can-be-worth-the-cost","status":"publish","type":"post","link":"https:\/\/www.coastalcapital.com\/why-a-hard-money-loan-can-be-worth-the-cost\/","title":{"rendered":"Why A Hard Money Loan Can Be Worth The Cost"},"content":{"rendered":"\n

Part 2 Of Coastal Capital\u2019s Blog Series: Introduction To Private Mortgages<\/strong><\/h2>\n\n\n\n

Why are real estate borrowers willing to pay higher rates to borrow private money also known as a hard money loan? With hard money loan interest rates around\u00a012% plus points added in, the borrower is paying a premium. It\u2019s obvious why this is a great deal for the private mortgage investor\/lender and the broker. Why are real estate investors be willing to pay these high rates when conventional mortgage money costs 6-8%? There reasons are many, but generally all tie to four advantages:<\/p>\n\n\n\n

Speed of Closing the Transaction<\/strong><\/h3>\n\n\n\n

Mortgage money from banking or institutional sources usually takes between 45 and 90 days to fund. Institutional lenders need to not only obtain appraisal of the value of the property. Then, require a detailed examination of the borrower\u2019s credit history and current financial status. Finally, financial statements and tax returns for the property securing the loan are needed. And lastly all other properties, business interests owned by the borrower are examined. <\/p>\n\n\n\n

Coastal Capital and other hard money loan lenders can usually complete a transaction within 5 to 15 days. The property value itself is the main criteria used in determining loan eligibility. Less information on the borrower and the borrower\u2019s other properties is required, resulting in a fast approval process. Coastal Capital\u00a0is protected by lending at a much lower loan to value ratio, 65% is typical vs. 80% – 90% for an institutional lender. Further,\u00a0private mortgage lenders can make a decision within 24 hours of receiving an application. Institutional mortgage money must receive the approval of a loan committee that may meet twice a month.<\/p>\n\n\n\n

Real estate investors often need immediate financing to take advantage of an opportunity to purchase a property below market price. In many cases a motivated seller being forced to sell and the borrower has to act fast and a hard money loan is a good choice. Sometimes its possible for an investor with quick financing to purchase the property at 70-75% of market value. Especially when it\u2019s a foreclosure opportunity. Conventional or institutional financing takes too long (according to Zillow the average is 30 to 45 days https:\/\/www.zillow.com\/home-buying-guide\/how-long-does-it-take-to-close-on-a-house\/?106724136213dsa-588695699669459688491291<\/a> ).<\/p>\n\n\n\n

Real estate investors wanting to take advantage of an opportunity either needs cash liquid or utilize the services of Coastal Capital. With so much profit potential, paying a premium is a small price to pay for completing the transaction. If the real estate investor keeps the property, he can start refinance with conventional money right after closing. If the investor in the above example seasons his property, (owning it for 6 months to 12 months), it often appraises much higher than the purchase price. Then the entire purchase amount can be financed with a conventional mortgage. The end result is the investor owns a cash flowing property with no net money out of his or her pocket.<\/p>\n\n\n\n

Sometimes, real estate owners are in temporary financial trouble, and need a loan to avoid losing a foreclosure. At just such a time conventional lenders back away. Coastal Capital can provide refinancing, providing a lifeline to the property owner to avoid foreclosure. This gives time to regroup and reestablish credit then refinance at a later date with conventional financing. So when time is of the essence a hard money loan is often used for:<\/p>\n\n\n\n