Financing in regards to real estate projects can be pretty overwhelming. When it comes to financing, particularly when you have a construction project, it can be more difficult. That is because a construction loan is considered high risk and a venture that causes financial lenders to be skeptical about whether or not they want to provide the funds for your idea.
The Problems With A Regular Loan
By getting a more traditional loan in regards to construction, you will experience a variety of issues. These issues include problems like time consumption. Your schedule and plans can get delayed, and that can cause issues for your project and frustrate you in the process. In addition to the timing issues, you can experience cost issues. If you have problems with the lender, that can cause you not to meet your deadlines, and you may not acquire the property in time either. Another financial issue you may experience is an overrun. When this occurs, you harm the project when it is finished.
With these issues, you experience unneeded hassle, and it creates tension where there doesn’t need to be any. Because of these problematic issues, it is recommended that you should opt for a hard money loan instead. That is a form of financing that helps hold you accountable and ensure that your project will be done on time and within your budget.
What Is A Hard Money Loan?
A hard money loan is a financial option that you can take that will allow you to have a short-term loan used to finance the construction of real estate property. It is similar to other loans because you receive a portion of the funds while the rest is held in an escrow. The funds for construction stored in the account will be given to you during particular times. Most commonly, you will be given the money after specific areas of the project have been completed.
The process you will have to go through is simple; you just need to be patient. When the lender receives confirmation that your work has been finished, they will release the money. It usually takes between a single day, to up to four days though in some cases, it may take a little longer.
Why Hard Money Lenders Are Better Than Traditional Loans
One thing about the construction market will always remain true. If you want to build, you will need money. With the changes in the market, it has become harder to find lenders that are willing to back you and ensure that your project comes to fruition. Hard money lenders are a crucial alternative for non-traditional methods. They work great for people under the pressure of time-sensitive projects, and you can’t wait for a conventional loan program to get back to you. That is where hard money lenders genuinely have the upper hand. You can usually contact a lender to close the deal with you in mere days instead of weeks. You will find that even people with the best credit and finances will choose this option because of the quickness of the deal. See more to learn about hard money lenders.
Understanding Loan Structure
Loan structuring is another area you need to consider with construction loans. More traditional lenders treat everyone the same. They have specific terms that you have to meet, and they don’t work with you. Hard money lenders can change that for you. A hard money loan is more flexible, and it has different rules for repaying your loan. They will also be able to restructure the loan terms in a way that benefits both parties. The best part? They can provide you with a structured schedule to meet your needs and help you understand the said plan for repayments.
Know Whether Or Not You Will Qualify
Many factors will go into deciding whether or not you will get approved for a construction loan. Even if you have a solid financial history and good credit, you still may get rejected. An example of something that could get you rejected is if you are self-employed. That is because you will be considered high risk. When they look at your finances, they will also determine whether they think you will repay the loan. If they believe that you can’t, you will get rejected. However, the positive side is that they are interested in more construction projects than a typical lender, so you have a higher chance of being accepted instead of rejected.
The Process Of Getting Accepted
The process of being able to secure a hard money construction lender is a lot different from other methods. The first big difference is that they are not requiring you to fill out a stack of paperwork five inches high. Instead, you have a short stack of papers. The documentation will be reviewed right away with you, and if they think you are a good candidate, they will ensure that you have a deal. The writer will ask questions about what you will be doing, your experience, and other important questions before making their ultimate decision. After that, you will be issued a sheet that outlines every detail of the application and the loan details to know exactly what you are getting into. There are no hidden fees or hidden words to confuse you or set you up. When they are sure that you understand, you move into the processing phase, which requires specific documents. Once you provide them, an attorney will close the loan.
Choosing A Hard Money Loan
Hard money lenders can give you a better financial option than traditional methods, and because of that, they are the better choice for many people. These lenders are more flexible and reliable, making active strides to work with you instead of against you. Having that option creates a better financial situation for you and will allow you to have a solid plan in place with wiggle room if anything happens. By using hard money lenders to help you finance your project, you can ensure that you make the best decision to make your construction dreams go from fantasy to reality.