What is a hard money loan?
Updated: Apr 1, 2020
A #HardMoney loan traditionally involves a loan from an individual or private company (a.k.a., Hard Money Lenders) rather than a bank or government institution, and it is a loan that is typically used in a real estate transaction. Hard money loans are largely secured by the property itself and are generally not limited to the same regulatory restrictions and rules that banks are held to. As such they are often considered higher risk than bank funded loans and therefore can be more expensive.
Fortunately, at Builders Capital, we have relationships with capital partners that allow us access to funds at reduced cost, which we can pass to our borrowers. What that means is that when we structure your loan our pricing often falls somewhere between bank rates and the typical hard money lender's rate on a similar loan. Keep in mind though that the devil is in the details. It's important when comparing rate structures between lenders and banks that you do your best to review the fine print and compare apples to apples.
Why should you use a hard money loan instead of a bank loan?
That is actually a great question asked by many of my borrowers. Well, the short answer is that hard money lenders aren't obligated to the same regulatory restrictions that banks are held to. Banks get their money from the government and from other regulated sources whereas a #HardMoneyLender obtains funds through private capital sources.
Here are some advantages to funding through Builders Capital (BC) when compared to most banks:
Quick closings - With BC most loans are closed in 7 to 10 business days after receipt of the appraisal and supporting documentation. Banks can take up to 90 days to close a loan.
Lower down payments - With BC the LTV/LTC ratios are typically higher than with most banks meaning lower down payments and more funds dedicated towards your project.
Faster Draw Processing - With BC customers can submit draw requests any time and as often as desired through the convenient online portal. Funds are generally distributed within a week. Banks often limit draw requests to 20% increments and in some cases can take up to 30 days to fund draws.
Loan servicing - with BC you'll have a direct relationship with our staff from day one until your loan is paid off because we service 100% of our own loans and draws. With banks and many other lenders the servicing of the loan is often outsourced resulting in reduced quality of service and a diminished customer experience.