Hard Money Financing Versus Traditional Commercial Loans


Hard Money Financing Versus Traditional Commercial Loans

This BLOG On Hard Money Financing Versus Traditional Commercial Loans Was UPDATED On November 25th, 2018

Hard Money Financing is not for real estate investors with poor credit or first time investors.

  • Many veteran experienced real estate investors use hard money financing as a great short term tool
  • They can get fast cash and close on a real estate transaction in two weeks
  • Two of the greatest benefits of using hard money financing are the following:
    • Speed:
      • Hard money loans can close in anywhere between a week and no later than 30 days
    • Flexibility:
      • Limited documents and lenders are open minded where everything is negotiable

Time Is Money For Real Estate Investors

Time is money and there are many deals a real estate investor may run into and may not have the time to get traditional commercial financing with a bank where it can take more than 90 days.

  • Hard Money Financing is the solution and the key
  • Hard Money Loans are normally used as a bridge loan where real estate investors can purchase the property that is not stabilized, in foreclosure, vacant, or a property that needs major work
  • Investors can purchase a property that needs extensive work
  • Hard money lender can offer the acquisition and construction budget in a matter of a few weeks unlike several months with banks and traditional commercial lenders
  • On this article, we will cover the main benefits for real estate investors to use hard money financing versus traditional commercial loans

Hard Money Financing Offers Fast Approvals And Closings

In general, real estate investors who seek financing on a commercial and/or investment property at a bank or direct commercial lender, it will take them more than 90 days to get the deal from origination, processing, underwriting, conditions, and closing/funding.

  • However, hard money lenders normally close their loans in 30 days or less
  • Processing and underwriting of hard money loans is extremely streamlined
  • It is a very simple process where borrowers just needs to complete a one page loan application similar to the Residential 1003 mortgage loan application
  • The conditional hard money financing approval is normally issued within minutes or no longer than 24 hours of the loan application being submitted

Hard Money Financing Versus Bank Loans

Here are the comparison and contrast of hard money financing versus commercial bank loans:

  • Investors completing a bank commercial mortgage loan application needs to complete an extensive five plus page application
  • Banks will not get back with further instructions for at least a week or longer after the submission of the application
  • Before any conditional commercial loan approval is issued, banks will require the following documents:
    • three years of tax returns
    • personal financial statement
    • Profit and Loss
    • business plan and pro forma summary
    • site visit by bankers
    • initial review by the bank’s credit committee
  • By the time the bank starts proceeding with the loan package, the property the real estate investor wants to purchase may be sold already
  • With hard money lenders, once the lender issues a conditional approval and borrowers signs the loan commitment, the loan can be funded once the title is clear which is one or two weeks maximum
  • Loan approvals on hard money financing takes no more than a day in most cases
  • Hard money lenders are open minded
  • If the investor has an emergency deal that needs a super fast closing, it can be done in a few days which is not possible from any bank in the continental United States
  • Hard money financing shows the seller of the property that the deal will close with no hiccups and shows strength on the buyer
  • When a real estate agent puts that the property buyer is getting financing via hard money loan, this show strength and most sellers prefer hard money financing buyers than traditional commercial bank financing

Red Tap At Commercial Banks

Banks are by the book and have a lot of internal rules and regulations unlike hard money financing lenders.

  • There are often times when banks put funds from the buyer’s escrow during the funding process for one reason or another which puts the whole project at risk
  • Nothing is wrong with bank financing, however, bank financing is best when investors are going for end financing and not no doc fix and flip hard money rehab loans
  • Hard money loans are much more reliable for real estate rehabbers and property flippers than traditional bank financing

 Hard Money Loans Chicago

Chicago is the second largest city in the nation and the rehab boom is in full motion.

  • Most buildings in Chicago and Northern Illinois are 60 years old or older and are in dire need of rehab
  • There are many vacant homes and apartment buildings in Chicago where real estate investors always wanted to acquire and rehab and either flip or keep them as rentals
  • Due to lack of hard money financing, this was not possible for many real estate investors and property rehabbers
  • Now with hard money financing being easily accessible and the 2 to 3 week closing turnaround time, real estate investors can go full steam ahead
  • Investors can begin acquiring and developing homes and apartment buildings
  • Hard Money Loans is available in most of 50 states

Real estate investors needing hard money financing please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email inquiries at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.

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