While most people have the mindset that traditional loans are the best way to conduct business affairs, this is not always the case. There are times when hard money loans are the best answer to a financial need, and sometimes financial circumstances prevent the borrower from qualifying for a traditional loan. New Jersey hard money lenders can provide the funding a company or individual needs when traditional lenders are unable to meet their needs. There are other circumstances under which a borrower may prefer to forego traditional lenders for a hard money loan.
Traditional Lenders are Squeamish on Financing Depressed Properties
Hard money lenders often have an edge over traditional lenders because of their willingness to invest in depressed properties. If you are even able to gain the interest of a traditional lender, it is more than likely all you will be able to borrow is 70-75 percent of the current market value of the property which is greatly reduced because of the necessary repair work and renovations. On the other hard money lenders will loan 60-75 percent of the anticipated value of the property after all work is complete. That may look on the surface like the traditional loan is better, but if the property needs a substantial amount of work, it may not have the value it should.
Look at this scenario: a depressed property is on the market for $500,000 although repairs and renovations will increase that value to $1.5 million. Is it better to finance 75-80 percent of $500,-000 or 60-70 percent of $1.5 million? The most you can finance under traditional lending is $375,000 compared to $975,000 with hard money. That also means you will probably not find it necessary to put any of your own money into the deal. New Jersey hard money lenders can help you get your project off the ground even after traditional lenders turn you down.
Turn Around Time Makes a Difference
Another thing to think about is how soon you need the funds keeping in mind traditional lenders can take sixty to ninety days from the time of application to the time of closing. On the other side of the spectrum, many hard money loans only require ten to fourteen days from the date of application to the date of closing. This is highly advantageous for those borrowers who require funds to close a deal quickly or to prepare necessary paperwork in preparation for renovations and repairs.
Credit Issues May Affect Qualifying for Traditional Financing
Different lenders have different qualifications for loans. Even if you have a fair rating it’s possible you may not be able to obtain the funds you need. Certainly different factors come into play including how much money you need and the value of the collateral. However, if you do find yourself at a standstill with traditional lenders, New Jersey hard money lenders will provide the funding you need. Remember hard money lenders are not interested in your credit standing but the value of the real estate that will secure the loan.