Before you start researching New Jersey hard money lenders, there are some things you need to know from the start. One of the most important things is to understand the differences between traditional loans and hard money loans. Do not assume they fall under the same rules and regulations.
Lending Guidelines Differ
One of the most important things to keep in mind about hard money is the regulations do not follow those you might expect from Fannie Mae, Freddie Mae or even your local bank. Those entities rely on credit scoring to determine eligibility, and if you don’t meet the credit guidelines you will not be approved for the loan. While some lenders will allow for smears on your credit when it comes to your personal residence, the same exceptions may not hold true for commercial or investment property. In the case of New Jersey hard money lenders, their decisions are based solely on the value of the property and whether they feel it is a viable investment on their part.
Loan to Value Ratio
Another marked difference between hard money loans and traditional loans is the loan to value ratio. Most traditional lenders finance (on average) 80 percent of the appraised value of a property. While this figure is likely to increase or decrease based on the credit worthiness of the borrower, this figure is average. The same does not hold true of hard money lenders. The average LTV hard money lenders allow is 65-70% which means the borrower has to come up with a 30-35% down payment. Of course, if the property is a rehab, the LTV is based on the projected value after repairs are completed. For a property that is based below market value this can could provide the borrower with the possibility of financing the entire purchase with no money or his own.
Turnaround Time from Application to Closing
Anyone who has bought property knows traditional lenders spend a great deal of time making a decision about a new loan. This is because there is so much paperwork involved with title searches, deed searches, appraisals and much more. However, the turnaround time for those choosing a hard money lender in New Jersey is approximately ten days. For the investor looking to close on a great deal while it is still available, this is a definite advantage.
The interest rate is one of the few guidelines that New Jersey hard money lenders must follow. However, New Jersey is very liberal in their interest cap with the highest in the nation at 30%. While this is an advantage to the hard money lender in New Jersey, it is not a very advantageous rate for the average investor. This certainly doesn’t mean hard money lenders have to charge that amount, but there is nothing to protect the borrower in the event a hard money lender wants to charge such a high rate. This also gives them the option to increase the rate in the event the borrower defaults on the loan.