In Search of Hard Money Second Mortgage Loans?
Real estate investors are constantly looking for new loan options for increasing their profits and improving their investment portfolios. We want you to be aware of loan options to seek hard money second mortgage financing.
Hard money second mortgages may be ideal if you’ve been considering new options for a business purpose. Perhaps you need to increase your credit score or pay down high-interest debt. When you seek a second loan, you take advantage of the equity you have put into a real estate investment property.
Hard Money Lenders vs. Traditional Lenders
No matter your reasons for pursuing a hard money second mortgage, you need to be aware of your hard money 2nd loan options. If you seek a traditional bank loan from traditional lenders, you may be in for a surprise. Sometimes, traditional lenders have rigid requirements that must be met before offering any loans, such as the property being owner-occupied.
Unfortunately, banks have stringent guidelines on interest rates and loan terms that they refuse to deviate from. These strict rules make it sometimes impossible for individuals to get a second using hard money loans.
Instead of jumping through hoop after hoop for a property loan, you should consider building a strong relationship with a hard money lender. These mortgage lenders can offer you hard money 2nd mortgages that do not require borrowers to follow stringent rules and regulations.
Understanding Second Mortgages
You likely know how conventional mortgages work if you own a primary residence. When you purchase a property for primary residence purposes, you typically go to a bank and get a mortgage for the property. The property is the collateral for the loan, and often the loan-to-value ratio makes the deal enticing to the lender.
As you make payments on the property, it slowly gains value. Equity is the difference between the amount you owe on the property’s existing loan and its current property market value. To cash in on this equity, you will need to take out a second mortgage. You have options for getting a second mortgage from a bank or a hard money home equity loan.
Since the requirements and terms vary greatly among lenders, you must carefully choose the type of loan and lender for 2nd mortgages. By choosing the right hard money lender and using hard money 2nd mortgage financing, borrowers can form a lasting relationship with a lender that will help them greatly in their real estate endeavors.
Hard Money 2nd Mortgages VS Traditional Bank 2nd Mortgages?
Chances are, you have already dealt with a bank for your primary residence loan. You likely have not forgotten the stiff requirements, the back and forth with the mortgage lender, the insane documentation requirements, and of course, dealing with the realtor. The biggest issue with getting 2nd mortgage financing from a bank is they consider it a big risk.
If your traditional lender offers these loan options, they will make sure you meet the following stringent requirements, or you will most likely not get approved.
- You must have paid a significant amount of payments on your first mortgage and built up a strong level of equity. Banks may also verify the property value of your first mortgage.
- You must also prove you have a steady employment history. Banks want to ensure you have the money to make your loan payments.
- Your credit score must be very high. The bank sees lower credit scores as a risk. To them, this means you are unreliable and are less likely to make your loan payments on time.
- You will also need to have a low debt-to-income ratio. Some banks may ask you to look into debt consolidation options.
The biggest difference between traditional first mortgage loans and hard money 2nd mortgage financing is the decreased loan requirements. Hard money lenders will not make you jump through hoop after hoop like traditional lenders will for private money loans.
They won’t have as many questions for you as you might think. Loan lenders like this are less concerned about trivial matters, such as whether the property is being purchased for a business purpose or if the property is owner-occupied, a multi-family home, a commercial property, etc.
Private lenders offer a higher level of flexibility. While hard money lenders (2nd position) examine all deals in their entirety, they can offer flexible options that benefit borrowers. They offer reasonable interest rates, debt consolidation options, lower monthly payments, and other short-term solution options that make all the difference when getting a hard money second mortgage loan.
What Are the Available Property Types?
You can seek a hard money second home equity loan on the following types of properties.
- Single-family residences
- Multi-family residences
- Commercial properties
- Industrial properties
- Land
Hard money loans are available for both owner-occupied and non-owner-occupied properties. Hard money 2nd mortgage financing options are available to the property owner for consumer and business purposes.
EXAMPLE LOAN SCENARIOS
Reasons Consumers Choose Hard Money Loan Options
Consumers seek 2nd lien, hard money lenders for various reasons. The following are some reasons borrowers choose these loans.
- Pay off high-interest credit cards
- Pay medical bills or medical loans
- Pay off high-interest loans
- Settle tax liens
- Pay off judgments
- A bailout of a foreclosure
Reasons Business Owners Choose Hard Money Options
Business owners also choose 2nd mortgage hard money lenders. The following offers information on why a business owner may seek this loan option for their hard money 2nd mortgage financing.
- Purchasing and improving an investment property
- Business purpose
- Increased operating capital
- Purchasing new business equipment for a business purpose
- Purchasing a new office
Why Are Hard Money Second Mortgages Better Than HELOCs?
Although a bank may offer you a HELOC or standard home equity loan, there are reasons you should consider a hard money option from a hard money lender instead. The following are some of the key reasons hard money loans are better than HELOCs.
1. Hard Money Loans Generally Do Not Show on Your Credit Report
Many people seek hard money 2nd mortgage loans to improve their credit scores. Unfortunately, if the loan goes on your credit report, your score could drop. Thankfully, in most cases, hard money options do not appear on your credit.
2. You Can Have Poor Credit
When you apply for a HELOC, one of the first things the bank will do is run your credit score. If it’s too low, your chances of approval will sink to 0%. Most HELOCs require a score of at least 700. You can typically get a hard money loan from private investors for a business purpose with a score as low as 500.
3. You Can Get Approved With a Higher Debt-to-Income Ratio
Banks don’t just check your credit history. They also want to know about your income, debts, and loan-to-value ratio. If your debt-to-income ratio is too high, they will deny your loan. Your DTI does not matter to most hard money lenders in this loan scenario.
4. You Will Close Faster
When applying for a home equity line of credit, you can expect the closing process to take up to 45 days from a traditional lender. If you are a consumer choosing a hard money option rather than typical second mortgages, you can expect to close in around ten days. Business owners can close on real property as soon as seven days.
MORE EXAMPLE LOAN SCENARIOS
Getting a Second Mortgage Should Not Be Stressful
If you need a second mortgage, you shouldn’t have to go through a stressful and lengthy process only to be turned down by the lender or receive above-average interest rates. The process of seeking a loan should be informative and beneficial for real estate borrowers.
Private lenders, or hard money lenders, can often offer borrowers a greater level of flexibility that banks cannot provide. These lenders work with your unique circumstances to provide fair terms, even for multi-family investment property or owner-occupied properties.
Get Started Today for Fast Pre-Approval
The lenders we partner with are dedicated to making the loan process less of a hassle for their clients. We understand you likely have a lot of questions, and we are here to answer them and help you understand your options.
Hard money mortgage financing may be the perfect choice for you. Reach out and ask about fast pre-approval for second mortgages. We will guide you every step of the way to ensure you make the best loan choice for your second mortgage or other loans.