When you begin searching for a hard money lender in New York there are a couple of things of which you must be aware. Generally speaking you do not want to become frustrated when you discover there is a difference in both interest rates and repayment terms when compared to traditional funding sources. While the rates may not be as attractive as traditional loans, it offers investors open opportunities that may not exist without the availability of hard money loans.
Interest Rate
One thing to remember about any hard money loan is you will be paying a higher rate of interest than that offered by banks and traditional lenders. While this may seem to be a downside to these types of loans, for those who are unable to secure financing from traditional sources, it can actually salvage great investment opportunities. The interest rates vary from 10-15 percent but they are high risk loans intended for those investors who are unable to secure traditional financing for any number of reasons including:
• Bad credit
• Investors interested in depressed properties
• The need for quick funding
All of these reasons and possibly more provide the fuel investors need to seek hard money lenders in New York instead of looking for cheaper traditional funding sources.
Loan Term
Another thing you have to consider when looking for hard money loans is the repayment terms. This type of loan is intended as a short-term solution to investment needs and as such the typical term is between one to six years. The short term and higher interest rates on hard money loans are encouragements to borrowers to seek more traditional financing. While this may not be an option for those who are unable to secure traditional financing because of credit issues, it can provide short-term financing for those who need to obtain money in a hurry or have property that will not attract banks and other traditional lenders.
Hard Money Loans for Depressed Properties
Those investors seeking financing for properties that are selling below market value because of necessary renovations can choose from a number of hard money lenders in NY. While they typically only loan 60-70 percent of the value of a property, in the case of depressed properties the loan to value ratio is based on the expected market value of the property after repairs and/or renovations are complete. This works in the investor’s favor because if there is enough of a difference in the after-renovation value of the property compared to the current asking price, it is possible the investor will not have to put up any of his own money.
Traditional lenders will not usually be interested in properties that are not up to standard. In addition, if they do see the potential of a property in need of serious repairs it is no guarantee they will base the loan amount on what the property may be worth when all repairs are complete. However, investors do have the option to obtain traditional financing when all the work is complete and the property can be assessed at current market prices.