Consumers have a couple of choices if they want to borrow money. They can to a traditional bank and take out a mortgage loan or they can go to private lenders. The lenders have significant differences.
Hard Money, Soft Money Pros and Cons
Soft lenders will need to check the credit of the applicant. The decision of the loan will rely greatly on this determination. If the applicant’s score is not high enough the loan will be denied.
Also with soft loans, the bank will go through a long-drawn-out application process. This process could take a few months. During this process, various papers and legal documents are gathered and then signed by the bank and the applicant.
When it comes to collateral, the applicant will need to be sure that his real estate property is sufficient. The total of the property will need to be enough to cover the amount required by the bank. Unfortunately, if the property isn’t enough the bank loan may be rejected.
A couple of good things about soft money lenders are the interest rates. Soft money lenders charge interest rates as low as 4%. This isn’t bad for a home investor who doesn’t want to pay an enormous amount for interests. And then there’s the amount of time allotted to pay the loan back. The time given to pay back the loan could be 5 years or more.
As far as hard money lenders go, the process works a little differently. For example, the credit of the applicant does not matter as much when it comes to deciding on loan approval. So the applicant could have a 500 score and still be approved.
Credit scores, bankruptcies, etc, however, may determine the amount of the down payment. In many cases, a down payment may be needed for a hard loan. The down payment could be as much as 30% of the loan amount. The collateral that’s on the table, could cover the amount of loan. If it doesn’t, the private lender will demand a down payment.
Hard loans are recommended when a short application process is needed. The private lender can make a determination, complete the case in a matter of two weeks. This quick and fast for investors whose time is very valuable.
Collateral is another main difference between hard and soft money lenders. Hard money lenders will usually accept collateral that may not be real estate. Retirement funds, businesses can be accepted and used as collateral. Unlike the strict hardline policies of soft money lenders, hard money lenders have a tendency to be more negotiable.
The reason for this is because private lenders are working with their own money. Whereas traditional banks are working with the money of others. Because of this, the applicant may be able to make little changes throughout the process.
A couple of things to watch out for when it comes to hard money lenders are the high-interest rates and the payment due date of the loan. Hard Cash lenders are known for their high-interest rates. The rates could be as high as 12%.
The applicant may want to attempt to lower the rate, prior to closing the deal. At austin hard money loans, the customer comes first. So negotiating interest rates may be an option.
If the rates can not be negotiated, shopping around for private lenders with lower rates, can’t hurt anything. It may take a little more time and effort, but eventually, the applicant may find a better deal. The same goes for the payment due date of the loan.
Normally, hard cash will allow a year before asking for repayment. If the applicant needs more time, they can either negotiate or shop for another lender. Austin hard money loans are often willing to determine the best due date for the client. Remember, if the payment can not be made by the due date, ask for an extension. For an extra fee the lender may be likely to accommodate.