Do you think you could benefit from getting a fix-and-flip loan? Do you need a new construction loan? Are you frustrated by the lack of options offered by financial institutions? If so, you may need to go to a private money lender for a loan. If you’re on the fence about going through a private lender, keep reading to discover the answers to some of the most frequently asked questions in the industry.
6 Advantages of Going to a Private Money Lender
1. Rapid Funding
One of the most compelling advantages of going to a private money lender is how quickly you can get funding. When you go to a financial institution to take out a loan, there are a lot of hoops to jump through. In some cases, it may take weeks for your funds to be disbursed. In other cases, it can take 45 to 60 days to close on a loan from a bank or credit union. For example, the time of year you apply for a mortgage can quadruple the time it takes to get a loan.
With a private lender, as soon as your title policy is approved, you’ll get your money. The time it takes to clear your title will be the biggest hold-up standing between you and your money.
2. Flexible Terms
Another very compelling advantage of going to a private lender is the flexibility of the term structures available. For example, you can apply for a traditional program with a loan term of 12 months and borrow between $75,000 and $2M.
You also may qualify for a 5-month disposition program with a 12-month loan term. Furthermore, you may qualify for a deferred interest rate program with rates starting at 12% for qualified buyers.
3. No Prepayment Penalties
Yet another extremely compelling benefit of going to a private lender for a loan is the lack of prepayment penalties. If you receive a significant windfall, you may want to pay off your loan early to improve your cash flow and save money on paying interest. We fully support this and will not penalize you financially for making the best decision given your circumstances. You are free to pay off some or all of the loan early without fear of financial repercussions.
The convenience of going to a hard money lender instead of a bank also can’t be sneezed at. You don’t have to read through thousands of words of legalese that a pre-law student couldn’t understand. You don’t have to worry about a bait-and-switch. In fewer than 15 minutes, you can find out what rate you qualify for based on your FICO score, experience, and other factors. Even better, you don’t have to come to our office or call to talk to a representative.
5. Improved Cash Flow Management
You also may find cash flow management much easier if you go through a hard money lender for a loan rather than a financial institution. If you qualify for a deferred interest rate program, you won’t have to pay off your interest until you settle. This means you have more cash free every month to spend, save, or invest however you please.
6. Fewer Hoops to Jump Through
Another advantage of going through a hard money lender is that there are fewer requirements to get a loan. Traditional lenders need to do a lot of time-consuming due diligence. On the other hand, to get a hard money loan through a private lender, you just need enough cash coming in to make your monthly payments, a good deal of equity, and a sound exit strategy.
Other FAQs Answered
What Exactly Is a New Construction Loan?
A new construction loan is a loan designed for developers by developers. If you apply for this type of loan, there is a good chance that you will quickly be approved for a 12- to 18-month loan term with interest rates starting as low as 10.75% for qualified buyers. Depending on your experience with new construction builds, your FICO score, and other factors, you may qualify for an LTC of up to 85% and an LT of ARV of 70%.
What Type of Property Can Be Built With a New Construction Loan?
New construction loans are only available for certain types of residential construction projects. Specifically, you can build anywhere from a one-unit residential property to a four-unit residential property with a new construction loan. If you want to finance a commercial construction project or a 5-unit residential project, you’ll need to take out a different type of loan.
What Does LTC Stand for?
LTC is an acronym that stands for loan-to-cost ratio. This number describes how much funding can be expected on a purchase. If you qualify for a two-million-dollar loan with a loan-to-cost ratio of 0.85, you’ll need to be prepared to bring $300,000 to the closing table.
What Does ARV Stand for?
ARV is after repair value. This describes the estimated value of a structure as determined by a qualified appraiser once the scope of work, or SOW, is complete. If you qualify for an LT of ARV of 70%, you will receive 70% of this valuation upfront. The remaining money will be held in escrow.
What Exactly Is a Fix-and-Flip Loan?
A fix-and-flip loan is a type of loan designed to benefit professional real estate investors who are interested in acquiring and rehabilitating a property to sell for a profit upon the completion of the rehab project. When you take out this type of loan, you can expect your acquisition closing process to be a breeze without a worry about money.
In addition to the money you need to help you close on the property, you will have a reserve fund at your disposal to tap into as you complete repairs on the property. Once you have made all of the necessary repairs, the balance of your reserve fund will be distributed to you.
Should I Take Out a Fix-and-Flip Loan If I Can Afford the Project Myself?
You may want to take out a fix-and-flip loan even if you can afford the project yourself. To determine whether a loan is right for you, there are several factors you need to consider. For example, you need to consider how much the loan is going to cost you. If you opt for a 5-month disposition program, you can get an interest rate as low as 10%.
This won’t cost you much over the course of the 12-month loan term. In addition to the low cost of taking out this type of loan, you can get much better buying power due to the improved cash flow. You don’t have to worry about selling investments, filing and paying taxes on your capital gains, and missing out on a great deal.
There are a number of advantages of going to a private lender if you find yourself in need of a loan. Chief among them are the speed of funding, the flexibility of the term structures, and the lack of prepayment penalties. If you need a new construction loan or a fix-and-flip loan, we’re here for you. Contact us today at Turning Point Lending to learn more about the benefits of a private money lender or apply for a loan.