Florida Hard Money Lenders We Work for Your Best Interest

What Is Hard Money?

Hard money is a way to borrow without using traditional mortgage lenders. Loans come from individuals or investors who lend money based (for the most part) on the property you’re using as collateral.

When loans need to happen quickly, or when traditional lenders will not Most loans require proof that you can repay them. Usually, lenders are interested in your credit scores and your income available to repay a loan. If you have a solid history of borrowing responsibly and the ability to repay loans (as measured by your debt to income ratio), you'll get approved for a loan.

Getting approved with a traditional lender is a painfully slow process – even with great credit scores and plenty of income. If you have negative items in your credit reports (or an income that is difficult to verify to your lender’s satisfaction), the process takes even longer and you might not ever get approved.

Hard money lenders take a different approach: they lend based on collateral securing the loan, and they are less concerned about your ability to repay

If anything goes wrong and you can’t repay, hard money lenders plan to get their money back by taking the collateral and selling it. The value of the collateral is more important than your financial position.

Hard money loans are generally short-term loans, lasting from one to five years. You wouldn't want to keep them much longer than that anyway, because interest rates for hard money are generally higher than they are for traditional loans.

Why Use Hard Money?

Speed: because the lender is mostly focused on collateral (and less concerned with your financial position), hard money loans can be closed more quickly than traditional loans.

Lenders would rather not take possession of your property, but they don't need to spend as much time going through a loan application with a fine toothed comb – verifying your income, reviewing bank statements, and so on.

Once you have a relationship with a lender, the process can move quickly, giving you the ability to close deals that others can’t close (that’s especially important in hot markets with multiple offers).

Flexibility: hard money agreements can also be more flexible than traditional loan agreements. Lenders don't use a standardized underwriting process. Instead, they evaluate each deal individually. Depending on your situation, you may be able to tweak things like the repayment schedules. You might be borrowing from an individual who’s willing to talk – not a large corporation with strict policies.

Approval: the most important factor for hard money lenders is collateral. If you’re buying an investment property, the lender will lend as much as the property is worth. If you need to borrow against a different property you own, that property’s value is what the lender cares about.

If you’ve got a foreclosure or other negative items in your credit report, it’s much less important – some lenders might not even look at your credit (although many lenders will ask about your personal finances).

Most hard money lenders keep loan-to-value ratios (LTV ratios) relatively low. Their maximum LTV ratio might be 50% to 70%, so you'll need assets to qualify for hard money. With ratios this low, lenders know they can sell your property quickly and have a reasonable shot at getting their money back.

3. Shop around for the best rate

One of the smartest moves prospective homebuyers can make is to shop around for the best mortgage rate possible. Shopping around is a lot easier today than it was just 20 years ago thanks to the advent of the internet.

It's pretty easy to compare mortgage rates from online banks against national banks and/or local credit unions to see which financial institutions offer the most attractive rates.

Credit unions are an especially good place to shop around because they tend to have lower fees than traditional banks, and they pass some of these savings on to their members. Credit unions may also be more willing to work with consumers who have less-than-stellar credit profiles.

4. Ask your bank/credit union for a better rate

How's this for groundbreaking advice: Ask your bank to lower your rate. There are far worse things you'll be told in life than "No," but that's the worst possible answer you'll hear in this instance.

If you have an exceptional credit score of 800 or higher, which one in nine Americans has according to FICO, it could be worthwhile to ask your lender to match a competitor's interest rate, or to simply request a lower interest rate based on your exceptional credit history.

Lenders want the business of people with excellent credit scores, and they'll sometimes go to bat, so to speak, in order to get their business.

5. Put more money down

Fifth, take into consideration how much money you plan to put down on your home purchase. A small home loan, say $100,000 or less, means banks often charge a higher rate in order to make a decent profit. Likewise, home loans in excess of $417,000 are classified as "jumbo loans," and are perceived to carry more risk for the bank. These usually carry a higher interest rate, too.

Consumers may benefit by putting more money down on a higher-priced home purchase and landing in the sweet spot between these two figures. Putting enough money down to lower a home loan out of the jumbo loan category could save you thousands of dollars, if not more, over the life of your loan.

6. Shorten your loan

Another keen way to lower your mortgage rate is to consider shortening the length of your loan. The 30-year mortgage is traditionally how Americans purchase a home. However, financial institutions incentivize homebuyers who repay their home loans more quickly.

Taking out a 15-year, 10-year, or shorter-length loan than a 30-year mortgage will almost assuredly lower the interest rate you'll pay, which also reduces the overall cost of the loan.

According to Bankrate, as of Oct. 13, 2016, the average fixed 30-year mortgage had an attached rate of 3.45% compared to just 2.70% for a 15-year fixed-rate mortgage. This 75-basis-points may not sound like much, but a $200,000 loan with a 3.4% interest rate over 30 years would have a total cost of $319,306 according to Bankrate's loan calculator compared to a total cost of $244,304 over 15 years at 2.75%. That's $75,000 in savings that you get to keep!

7. Consider the adjustable-rate vs. fixed-rate loan trade-off

Another consideration homebuyers can make to lower their mortgage interest rate is the adjustable-rate versus fixed-rate trade-off.

Adjustable-rate mortgages typically offer a teaser rate for five or seven years that's lower than the average mortgage rate. However, adjustable-rate mortgages adjust higher to match the prime rate plus whatever the federal funds target is once this teaser time frame has ended.

For consumers who are unprepared, or in instances where a large shift has occurred in interest rates over a five- or seven-year time frame, homebuyers could see a crippling increase in their monthly mortgage payment

If you have the ability to pay off your home loan very quickly, a loan with a teaser rate may be worth considering. On the other hand, fixed-rate mortgages leave nothing to chance. You know what you're getting upfront. This trade-off is something homeowners should consider.

8. Pay for points

Eighth, prospective homeowners may opt to pay for points. Points are an upfront fee paid by homebuyers to lower their mortgage rates. Each point is equal to 1% of the value of the loan, and paying a point typically lowers your ongoing interest rate by 0.125%. For instance, paying a point on a $250,000 loan would cost an extra $2,500, but it would reduce your interest rate by 0.125% over the life of the loan.

When should you pay for points? The smartest time to pay for points is if you're going to remain in your home for a long time. Reducing your mortgage ,/prate will result in money saved over a 15- or 30-year time frame.

But as NerdWallet points out, most Americans only stay in their homes for an average of nine years. This is a trade-off that prospective homebuyers should weigh.

9. Set up automatic mortgage payments

Sometimes, the simplest things can save you money. While you'll want to check with your financial institution to see if this is offered, setting up an automatic mortgage payment that ensures you're never late can result in your bank offering a lower ongoing interest rate.

Just keep in mind that, if you close your account or change banks, your original lending bank could remove the interest rate discount applied for setting up an automatic mortgage payment.

10. Refinance

Finally, current homeowners looking to lower their monthly mortgages should strongly consider refinancing their existing mortgages. Mortgage rates are still near historic lows, meaning homeowners paying 100 basis points or more over the current rates may benefit from refinancing.

Homeowners should be following all of the aforementioned suggestions -- especially shopping around for the best rates -- when looking to refinance, but they'll want to use a mortgage-loan calculator to decide whether refinancing, including refinancing fees, is really worthwhile.

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