NYC Hard Money Loans Basics

    House flippers go to NYC hard money loans for funding when they aren’t able to solicit from the banks.

    People in the New York area who have not tried investing in real estate have often not heard about NYC hard money loans. NYC hard money loans can be of interest if you are buying properties.

    What Is An NYC Hard Money Loan?

    An NYC hard money loan is a loan backed by a “hard asset”. A hard asset is an existing property that can produce a profit to quickly pay off the loan. A traditional mortgage in contrast is tenable by the home’s value and the borrower’s ability to give the monthly amortizations for 15 to 30 years.

    Funded by private lenders, NYC hard money loans are a kind of private loan in contrast to government-regulated financial firms. These private lenders loan money just like the banks.

    Their main difference lies in the terms of the NYC hard money loans and the approval procedure and the loan purpose.

    Who Uses NYC Hard Money Loans and Why?

    NYC hard money loans are usually utilized by real estate investors needing funding for an investment deal in the short term. Great deals are gone soon and having cash is a win-win. No or little access to enough cash to fully finance deals can lead to less competitive offers to property purchases. 

    NYC hard money loans are commonly used for two (2) short-term purposes. The first is to fund fix-and-flip deals. The goal of this is to rapidly recover the money to repay the loan. The second one is to get an investment property purchase see through long-term funding. Rental properties by buy-and-hold investors use NYC hard money loans to buy and renovate, resulting in financing by a traditional money lender to pay off the hard money loan.

    House flippers resort to this kind of loan because they cannot have funding from a bank. This can be the case when the borrower’s credit score is not high enough or that the deal does not pass the stringent guidelines of traditional lenders.

    The interest rate, origination fee, and other costs of hard money for NYC hard money loans are higher to compensate the private lender for the high-risk deal.

    How are NYC Hard Money Loans Different from Traditional Loans?

    There are differences between hard money loans and traditional loans. Notably, they are:

    • Loan Terms

    NYC hard money loans: 6 to 18 months term

    Traditional loans: typically repaid over 15 to 30 years

    • Interest Rates

    NYC hard money loans: 4% to 10% higher than traditional loans

    Traditional loans: interest rates within government-approved guidelines

    • Profitability

    NYC hard money loans: short-term investors

    Traditional loans: owner-occupied properties

    • Supporting Clause

    NYC hard money loans: the property in issue as collateral

    Traditional loans: borrower’s property and personal credit

    Before engaging in any NYC hard money loans to finance any real estate investment, it is crucial to mind these differences.

    What Do NYC Hard Money Loans Pay For?

    NYC hard money loans can be called “rehab loans” that include the cost of the real estate property with the cost of renovation on top of it. Private lenders of NYC hard money loans require stipulation of rehab cost estimates from contractors completing renovations and typically only approve costs that increase property value directly.

    How Are Hard Money Loans Disbursed?

    Predetermined disbursements or withdrawals as need by the contractor for the property rehab are how funds are distributed to borrowers. The property acquisition cost is covered in the initial disbursement of NYC hard money loans. Subsequent fund withdrawals shall coincide with the renovation schedule needs. For instance, the borrower might withdraw for materials purchase and sever withdrawals over several weeks for labor cost pay.

    How Do Lenders Approve Borrowers for NYC Hard Money Loans?

    Bank underwriters see to it that borrowers can afford the monthly amortizations when applying for mortgages in banks. Property appraisers also need to see to it that mortgages do not exceed the property value. Traditional lending firms give mortgages to owner-occupied estates, not investment properties, and review by a committee often takes 30 to 45 days before it can be underwritten.

    On the other hand, the private lenders of NYC hard money loans are focused on the deal. Concerns such as financial sense, discount buying, appropriate renovation budgets, and determination of after-repair value (ARV) to ascertain property sale after and to repay loans within the term are what hard money lenders concern themselves with. So usually, NYC hard money loans take around 1 to 2 weeks to get approval and funding.

    What Are Typical NYC Hard Money Loans Terms?

    Varying from one lender to another, NYC hard money loans’ expected interest rate is at 7% to 12% plus an origination fee of about 1% to 3%.

    Borrowers need not have outstanding credit or give out personal info to qualify for NYC hard money loans as the loans are backed by the property on hand. Hard money lenders typically require you to put in at least 10% of the borrower’s own money. In this way, the lender knows they have a common interest: not losing money.

    NYC hard money loan terms are very competitive between money lenders. There are even loans available including 100% of the property purchase and some that are open to borrowers with lower than 600 credit scores.

    What are the Advantages and Disadvantages of NYC Hard Money Loans?

    As with any type of loan, NYC hard money loans have both pros and cons. Look into some below.

    Pros of NYC hard money loans

    • Deals are closed quickly.
    • Loans are supported exclusively by the property value.
    • Creditworthiness is not a criterion for approval
    • Lower loan-to-value ratio (typical 20% down not required)
    • Can be utilized as a bridge loan to longer-term financial investments

    Cons of NYC hard money loans

    • Higher interest rates
    • Additional fees (Broker fee, Application fee, Origination fee, which is usually 1-3%, Processing fee, Funding fee, Document preparation fee, Underwriting fee)
    • Property rehab must be finished on time
    • Property deed held by lenders as loan collateral
    • The lender requires builder risk insurance and casualty insurance regularly
    • Money for renovation may not be enough with unforeseen expenses as loans are based only on contractor estimates

    Are NYC Hard Money Loans Legal?

    Yes, NYC hard money loans are legal.

    Hard money lenders receive mixed reviews from real estate investors. The trade is not smeared by some greedy lenders who bully newbie investors and the majority of hard many lenders that give out NYC hard money loans are legitimate businesses and investors. These legit businesses deal with real estate projects to finance to gain a decent return on money.

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