Borrowing money does not solely mean that an individual is lacking resources. Many people come to us with lots of money and FICO scores in the 750 range.
Borrowing money can also mean people are looking to leverage themselves & brave enough to make an investment in the first place. It is safe to say, most people want to enhance their standard of living. More often than not real estate investments are a great way to accomplish their goals.
For such ventures to be successful, it is essential that we have enough knowledge about the source we intend to borrow our potential funds from. Aside from the financial resource it is important to dig further to understand what goes on behind the scenes with the processing and acquiring of loan.
If you cannot get conventional financing you have a few other popular options. The first one is a HARD MONEY LENDER. Hard Money Lenders are essentially the conduit bringing borrowers and the people who have money together. Not together in the sense that borrowers and Investors actually speak. Together in the sense that borrowers want money and Investors lend money specifically by investing in real estate collateralized loans. More commonly referred to as Trust Deed investments.
It is important to emphasize that for this type of loan to work, the borrower is required to put up real estate as collateral. The collateral will be the basis of the Hard Money Lender’s decision to make the loan to begin with. Unlike a bank loan, the Investor will rely on the value of the collateral much more than the borrower’s credit.
An advantage of availing the services of reputable Hard Money Lenders is having the assistance of a reliable professional on important matters such as up-to-date regulations and legislation. They are also fully licensed with the Bureau of Real Estate. In fact, Hard Money Lenders offering residential properties are required to be licensed under their state regulatory agency and through the National Mortgage Licensing System (NMLS).
Hard Money Lenders come in handy in terms of having a wide network of connections that offer borrowers a variety of options. They are like matchmakers in a dating show, only without the drama!
Another advantage and probably the most practical advantage to having a Hard Money Lender on your side is saving one of your most precious resources…. time and effort.
Your Hard Money Lender is the one who will objectively arrange the appraisal, review all paperwork, line up the funds, negotiate, process the necessary documents, and close the deal. This legwork is now a mastered maze your Hard Money Lender will take on with less difficulty as they are the ones intimately familiar with the process.
On the other hand, you have the option of PRIVATE LENDERS. Simply put, these are groups of people or individuals (family, friends, etc. included) that borrowers directly negotiate with. A glaring characteristic of this lending method is that this is more relationship based as compared to the arm’s length relationship of Hard Money Lenders. Both borrowers and private lenders work hand in hand in crafting the terms of the loan. There is no standard agreement across all private lenders since these are non-institutionalized entities unlike banks or credit unions.
Bottom-line, the services offered by Hard Money Lenders are tied to secured rules and detailed transactions while private lenders may be subjective, thus more flexible.
Whether you choose a Hard Money Lender or a private money lender, it is still important to be informed of the advantages and disadvantages of each. A smooth financial transaction relies on a deep understanding of the technicalities of services available thus knowing which method will expedite the process of achieving your desired loan. After all, it’s nice to have choices.