Before you can understand why banks and traditional lenders are not sources of hard money loans, you need to understand the definition of a hard money loan. Hard money loans are last ditch efforts to obtain funding for projects usually after traditional lenders and banks have declined to provide the necessary cash. Seeking a hard money lender in New Jersey means you will not need to be credit worthy because hard money loans are secured by the value of the property. Because the property is the only security for the loan, lenders tend to have lower loan-to-value ratio than traditional loans.
Hard money loans also have higher interest rates than traditional subprime loans. Banks and other traditional lenders do not invest in hard money loans, so those investors who either have poor credit or need the money in a short period of time must rely on the services of hard money lenders who are sometimes private individuals or groups of individuals who see the potential of risky ventures.
Excellent Choice for Investors
In today’s market traditional lenders are taking additional time to approve loans, a practice that has the potential to cost an investor the loss of great deals. They cannot afford to wait in line for days only to discover they will need to obtain another source of funding anyway. In this case New Jersey hard money lenders can help you secure the property you want though for a shorter period than a bank or traditional lender might—usually one to six years is the maximum for a hard money loan.
Bad Credit Not an Issue
It doesn’t matter whether you have good credit or even a bankruptcy or foreclosure when it comes to a hard money loan. These loans are secured solely by the value of the property, so even if traditional lenders turn you down you will be able to secure funding from a hard money lender in New Jersey. On the down side you may have to put up a substantial down payment since hard money lenders will typically loan only 70% of the projected value of the property. This can work to your advantaged if you are buying a depressed property because the allowable amount will be based on the ARV (after repair value).
Finding Hard Money Lenders
The difficult task here may be finding New Jersey hard money lenders. Unlike traditional lenders they do not typically advertise their services. It will be necessary for you to conduct some research, preferably within the area where you are interested in securing property since hard money lenders tend to prefer loaning money on property that is located within their own communities. Since these lenders charge higher interest rates than banks or traditional lenders, you will also need to research those willing to offer the best deals. Unlike banks hard money lenders will also loan money on properties that are currently selling below market value but require renovations to bring them up to standard with the rest of the properties in the area.