The process of applying for a hard money loan is similar to that of a traditional loan. If it’s approved, you’re given a loan. You’re then required to repay the amount with interest over a predetermined time.
However, getting conventional loans can be challenging and time-consuming; the bank has stringent criteria that you’ll need to meet. That’s when private money lending steps in. It’s a more appealing option for commercial investors because of the relaxed rules and regulations.
This blog will guide you about those relaxed rules and how you can benefit from them.
Speed of Approval and Funding
Hard money loans are approved faster than conventional bank loans. On average, your bank will take around 30 days to approve your application. Once the bank approves the application, it’ll take additional three business days to fund your loan.
This is a disadvantage for property buyers as the seller might not wait long to get your loan approved.
On the contrary, hard money loans can be funded in seven business days. The hard money lenders are aware of how crucial time is for real estate investors, so they process approvals quickly.
Debt to Income (DTI) Ratio vs. Loan to Value Ratio (LTV)
Creditworthiness is a crucial factor in the approval of your bank loan. Banks will look into whether you have enough money to repay it or not. This is why they look into your salary slips, employment proof, and your account’s credit report.
Using the documents you provide, a DTI ratio is calculated by dividing your monthly debt payments by your monthly gross income.
For example, if your gross income is about $8000, and your credit card bill is about $2000, this means your DTI is 25% (2000/8000 * 100). Banks usually require a DTI of less than 45%.
On the contrary, the soundness of the investment for which you’re taking a loan is what interests the hard money lenders. They look if the value of your investment asset can cover the loan they’re providing or not.
This is why they look into property appraisals when considering your loan application. Using the information you provide, an LTV ratio is calculated by dividing your requested loan amount by the appraised value of your asset.
For example: If you need a loan of $60,000 to buy a property, and the value of that property is expected to reach $100,000 at the time of your repayment, your LTV ratio is 60% (60000/100000*100).
The smaller the LTV ratio, the profitable it is.
Reach Out to Commercial Private Equity for Hard Money Loans
If you’re looking for commercial hard money lenders, look no further than Commercial Private Equity. With more than 75 years of experience, we help you find the most cost-effective source of gathering short-term capital.