Frequently Asked Questions
What are Private or “Hard” Money Loans?
Hard money is the term used for loans funded by private parties who want a secure return. These private mortgages are not offered by conventional lenders such as banks. The most common hard money borrowers are individuals who have several issues that prevent them from qualifying for a traditional loan but have money set aside for at least a 40% down payment on purchase loans or if refinancing it is possible to get a loan for up to 60% of the current value. The issues can be because of credit, income, or property type. Creative Finance & Investments is a Mortgage Brokering company that arranges Private Mortgage loans as well as the purchases and sales of notes.
Are there any upfront fees?
Generally no deposit or fee is required. Loan fees and expenses are paid at the closing. Occasionally we will require an appraisal be paid in advance.
What are the typical interest rates for hard money loans?
Hard Money interest rates are generally higher than bank rates and typically range from 8-12%. The rate is determined by several factors such as; LTV ratio, strength of the borrower, condition and type of property, and equity or down payment of borrower.
Do borrows have to pay a pre-payment penalty?
Depending on the type and location of the property, there may be a three to six month pre-payment penalty with our loans. For Example, with a six-month prepayment penalty, if the borrower repays the loan in 4 months then the borrower will have to pay 2 months interest as a penalty. If the borrower repays the loan after 6 months there is no prepayment penalty.
What is private money typically used for?
Most often people who use hard money either have credit or income issues, or the type of the property securing the loan is commercial, bare land, agricultural, or the property type or condition which prevents them from meeting conventional loan underwriting requirements. Many developers and builders also use hard money because it’s funding is faster, their loans are looked at by “real people” and it is simply easier as a short term solution. A bank may turn down a borrower because the loan purpose doesn’t fit their criteria.
Do you have to have a down payment for Hard Money loans?
Yes, to qualify for our Hard Money Loans you need at least 40% equity in the property, and often more, since we do not lend more than 60% LTV. For example, if you are looking to purchase or refinance a property worth $100,000 then you must either have a cash down payment or equity in the property equal of at least $40,000.
How fast can private money loans close?
We are still required to complete “due diligence” on every loan we place with our private lenders, but if there are no problems with the title, coordinating the closing, and getting documents back, we can close a loan in about 3 to 4 weeks.
Is a Private Mortgage a good option for you?
Private mortgages are not for everyone. They are used by a very specific type of customer. If you have issues that put you into a higher risk category as a buyer private money might be your last option. If you have been turned down for a Real Estate loan because of poor credit, self-employment, income or because of the type of property and have substantial equity in your property or 40% of the purchase price to use as a down- payment, you might want to explore a private mortgage.
How do I get a Hard Money loan through Creative Finance & Investments?
Call us to discuss the basic loan details, or e-mail us a brief summary, or you may use our online loan submission form. If it’s a situation that meets our criteria and makes sense for the borrower then we will proceed to the next step. This includes sending the borrower an information release form so that we may order a credit report, talk with the realtor, order title and a BPO etc..
Do you work with other Mortgage Brokers?
Yes as long as they are working with the borrower directly. Many of our past borrowers have been referred by Traditional Mortgage Brokers who have hit a “road block” while processing the loan for the borrowers.
Why are hard money loans so expensive?
Hard money loans are more expensive than traditional loans because they carry a much higher risk, they are meant to be a short term solution, and most borrowers who use hard money loans have several credit or property type issues that prevent them from qualifying for a prime interest rate. Also lenders want the borrowers to have at least 40% equity in the property so that they are less likely to “walk away” or end up in foreclosure.
What are the advantages of hard money lending?
Often getting a bank loan is quite a bit harder than it once was; especially in these hard economic times. The time it takes to close a loan with a bank can be several months. The underwriting guidelines change all the time and the smallest change in your credit score, checking account balance, or appraisal can prevent you from obtaining the loan and closing the deal. Hard money lenders do not have automated underwriting terms and conditions that they have to meet; the turnaround time can be very quick. It may be the short-term solution while property improvements are made, credit scores are improved or other issues resolved. We ask the borrower prior to closing for their “exit strategy.”
What types of property do you fund?
We mainly lend on income properties, investment residential, bare land, commercial real estate, agricultural.
Can I sell my property if I have a hard money loan?
Yes, you own the property even though you might make your payments to a Private Lender. It’s the same as though you have traditional financing; you would just have to pay off the loan at the sale closing.
Do you pre-qualify borrowers?
No. Our loans are based mainly on the value of the property and the borrower’s ability to make payments.
Where do you Lend?
We can do commercial real estate loans in the Northwest.