Financing Owner-Occupied Properties in South Florida with Hard Money Loans

Individuals may have difficulty securing a standard bank loan for the purchase of a new home for a variety of reasons. If you have had to go through bankruptcy, have a history of previous foreclosures or are dealing with less than stellar credit scores, it can feel as though you have been locked out of the real estate market. Even individuals who have good financials can find themselves on the verge of losing a piece of property due to the lengthy approval process for a conventional loan.

Typically utilized by real estate investors and developers, most people don’t know that prospective homeowners can apply for hard money loans for owner-occupied properties as well. If you have dreams of homeownership in the competitive South Florida real estate market, a hard money loan with HML Solutions could be the help you need.

The Lure of South Florida Living

With everything South Florida has to offer, it’s no wonder that people of all ages are flocking there to live. The weather stays in the 70s most of the year, meaning recreational activities rarely need to stop.

Boasting the most extensive coastline in mainland USA, a trip to the beach is never far away. Florida is a mecca for nature lovers as well because it is home to over two hundred state and national parks, forests and preserves. In South Florida alone you can visit the Everglades National Park, Biscayne National Park, Big Cypress National Preserve or the Dry Tortugas National Park in the Florida Keys. Convenient state parks include the John Pennekamp Coral Reef State Park as well as Bill Baggs Cape Florida State Park.

Culture and educational activities are no less convenient with access to art, science, architecture and children’s museums. History lovers can wander the halls and grounds of the 1920s Bonnet House, the Old Fort Lauderdale Village that dates to 1905, the Murphy-Burroughs House circa 1901 or the Edison and Ford Winter Estates in Fort Meyers.

The Challenge of the South Florida Housing Market

If you are planning to make South Florida your home, you will find yourself in a very aggressive housing market. Home sales in South Florida increased by nearly 30% in a single month recently and prices climbed up more than 20%. Sales and prices for multi-family units, condos and townhomes have seen only slightly lower levels of increase, but that shows signs of changing in the near future. There are currently fewer homes on the market than there are potential homeowners. If you are going to secure your dream home in South Florida, you will need to move fast and secure a reliable form of financing quickly.

The Benefits of a Hard Money Loan

Real estate professionals routinely make use of hard money loans because of the unique advantages they offer. With an owner-occupied hard money loan you too can experience benefits such as these:

  • Hard money loans rely less on your own personal credit and more on the value of the property you are hoping to buy. This means that even those with credit history challenges can apply and be approved.
  • Hard money loans offer more flexibility than standard loans because you won’t be dealing within the strict confines of a traditional lending institution. These loans are acquired through a private lender, such as HML Solutions, which is not constrained by the reams of red tape that are common in a traditional bank.
  • You can often get approved for a hard money loan in a week or even less. In a challenging real estate market, that means you can get your financing faster than others interested in the same property, giving your bid the winning edge.
  • There are no prepayment penalties with a hard money loan. If you are using the loan as a financial stop-gap to secure a property until you can qualify for conventional funding, you are free to pay off your hard money loan as early as you wish.

The Challenge of Finding the Right Lender

The first task you will need to complete is to locate a lender. One of the reasons you may never have heard about owner-occupied hard money loans is that not every private lender provides this product.

Federal regulations dictate that in order to offer hard money loans to individual homeowners, lending institutions must undergo some highly time-intensive requirements. We must provide extensive documentation as well as obtain supplemental licensure. Additionally, we must adhere to significant government regulations and be willing to accept the great risk inherent in offering this service to our clients. At HML Solutions, we believe that the opportunity to assist more clients with their financing needs makes all of these requirements worth fulfilling.

You also want to be certain that you are dealing with an experienced and capable lender. Unfortunately, there are a handful of pretenders in the world that exist to take advantage of unsuspecting borrowers. Here are a few things to watch for in making your choice:

  • What kind of reputation does your potential lender possess? Do your research on this subject. You clearly want to avoid businesses that have a negative reputation, but you also want to be cautious with companies that simply have not made any significant impression on the industry.
  • Be cautious with lenders that do not have a clearly defined and robust public presence. You should be able to find out information about the lender easily. They should have a detailed web page that lists a legitimate address and contact information. The HML Solutions website is easily accessible and offers detailed information about who we are, what services we provide and multiple avenues of contact information.
  • Be suspicious of lenders that do not require a property evaluation prior to approving you for a loan. Since all hard money loans are based on the value of the property being purchased, a lender who shows no interest in those figures is highly suspect.
  • Follow the adage that teaches that anything that seems too good to be true, is most likely false. Lenders that require a large upfront fee should immediately lose your trust. Although there may be initial fees required, they should be minimal and explained to you in detail.
  • You should also be wary of lenders who make unreasonable promises such as the intention to fund the entire cost of your property, especially if this promise is dependent on receiving a fee from you. A hard money loan will typically cover up to 70% of your home’s value and the determination of the loan amount should be determined by the property value and the buyer’s financial solvency; it should never be affected by any fee.
  • Take note of the interest rate that the lender is offering and be suspicious of unusually low rates. An honest lender will tell you upfront that you should expect interest charges that are higher than a standard loan. Although this will vary and be affected by many factors, the usual interest rate range will rarely be less than 10%. This is due to the increased risk that hard money lenders take on when they give the loan.

The Requirements You Will Need to Fulfill

We are always straightforward in revealing all loan details to our clients with any of our loans. Due to the risks we will take on if offering a hard money loan for your purchase, there are several requirements that you will need to provide:

  • You will be required to maintain a set debt-to-income ratio for the duration of the loan which will impact your ability to take on other debt until the hard money loan is repaid.
  • You will need to provide proof of income through documentation including W2 statements and tax returns.
  • You will need to reveal past and current financial responsibilities such as credit card debt and other loans so that we can assess your financial fitness and ability to meet scheduled payments.
  • You will have the responsibility to provide a higher down payment on your home than is typical for a traditional loan. It is usual for applicants for an owner-occupied hard money loan to be asked for a down payment of up to 30% of the purchase price of the home.
  • You should be aware that the repayment term for a hard money loan is generally significantly shorter than a standard loan. You will need a plan for repayment in the short term or the possibility of refinancing the loan before the end of its term.

Contact Us Today

The expert agents at HML Solutions are highly trained in all the fine details of owner-occupied hard solution loans. We are prepared to consult with you on your financing needs and to develop a loan program that is suited to your specific situation.

We encourage you to look into our established reputation in the financial industry and to take a moment to read through our website to familiarize yourself with our products and our approach to client relationships. We are confident that you will find our company to be a trusted partner in financing your homeownership dreams. 

Using Hard Money Loans To Finance Rental Properties in West Palm Beach

The real estate market has always fluctuated, but there are some individuals that understand those ebbs and flows and use them to create wealth. In fact, successful investors in real estate understand how to use other people’s money to build their portfolios. With hundreds of options available to fund investments in property, building relationships with the money man is critical in today’s economy. That is why hard money loans, as a short-term financing option, are important for acquiring rental properties.

Defining Hard Money as it Relates to Rental Properties

Private investors offer hard money loans, and they are usually short-term. While banks use underwriters and extensive background checks to process their loans, hard money financiers don’t use this procedure to ensure the loan will be paid back. That means they often have a minimal process for approving loans.

Rental property investors use hard money loans to quickly turn properties around. The interest rates may go up to 18%, but the money can quickly be secured instead of waiting months for a traditional loan with an interest rate of around 5%.

When a property flipper finds a promising foreclosure, they can’t afford to wait months to obtain a bank loan because the property will be gone. Additionally, some borrowers don’t have perfect credit scores or crystal-clear backgrounds, making bank loans almost impossible to obtain.

Using Hard Money Loans When Purchasing Rental Properties

Since banks only finance a portion of the total loan amount, a hard money loan for rental properties can be a distinct advantage. In other words, when there is an amazing property deal available but you don’t have the cash required to front the deal, hard money is the way to go. What are some of the other advantages of a hard money loan?

  • Financing is easier to get than bank money.
  • No reams of papers to fill out to qualify.
  • Loans have flexible options.
  • Financing is short-term with no payback penalties.
  • Money savings on processing rental properties in turnaround time.

Valuing Hard Money Loan When Applied to Rental Properties

Financing hard money loans is as simple as using a formula. The lender looks at the value of the rental property, or the potential value when renovated, and evaluates the rent on the property. If the property’s after-repair value is high enough and the loan-to-value collateral exceeds 60%, the lender can begin processing the financing.

The formula looks like this for a $100,000 loan:

  • Mortgage Amount / Property Appraisal Value = LTV Ratio
  • Or
  • 100,000 / 160,000 = 62.5% LTV

When this formula is applied to financing packages for rental properties, it ensures the lender has enough collateral in the property to cover the loan if the money is not paid back. That means the quick money loan is a win for both parties.

Winning With Hard Money Loans for Rental Properties

Whether you are already a property investor, or you are just starting your first fix-and-flip project, you will need to find a reliable and trusted source in Florida like HML Solutions. As noted above, hard money loans are a great alternative to standard financing when you want fast money and convenient pay-back terms. Check out the benefits, and you will be sold.

How Hard Money Loans Work for Investment Properties

Buying and selling real estate has become more popular than ever before as it also becomes more lucrative. As buyers request more money, various financing sources like HML Solutions have surfaced that integrate availability with loan security. These methods include traditional financing, standing loans and hard money investment options. No matter which type of real estate investment portfolio you are creating or which investment financing services you use, it is time to become aware of hard money loans and the advantages they can offer your business.

Defining the Loans

Although traditional loans are well known as financing secured from banks, hard money can only be obtained from private source lenders. The terms and conditions of these private loans are often very different than those found at a bank or credit union.

Private investors offer short term loans of up to 12 months that can sometimes be extended for up to 5 years under exceptional circumstances. The interest is paid off first, and most lenders request a balloon payment be made at the loan’s conclusion to ultimately pay the contract off. The money can also be turned around to invest in another property if the lender is agreeable.

The property’s value determines the loan amount with this type of private money funding. The buyer’s creditworthiness isn’t at the basis of the loan approval. Instead, the lenders look at the value of the property or the after-repair-value of the building.

Benefiting the Buyers

When discussing commercial investment or residential property purchase options, it is important to note that this loan does not benefit all types of real estate investors. The short payback period and higher interest rates make the loan work for short-term projects, but not those with long over-head problems. Here are four of the types of investor’s that hard money funding does work for exceptionally well.

  • Long-term property investors
  • Property renovation investors
  • Buy-and-hold investors
  • Fix-and-flip investors

Take note that the private money loans do not work to benefit owner-occupied buildings, and the funds cannot be used for household and personal use, either. Long-term property investors that buy distressed properties, update the buildings and rent them to tenants also love hard money loans as short-term solutions.

Helping Buy-and-Hold Buyers

A buy-and-hold investor typically invests in properties that are in poor shape, need major renovations or have other complicated problems associated with the building or land. Conventional money lenders won’t touch properties that are in exceptionally poor shape or that have questionable challenges.

A hard money lender will invest in the real estate purchase equal to the initial purchase and the required renovations. The investor improves the property within the first year of the loan using the money provided and turns the property around within weeks, if possible. Once the property is rented out, the investor can obtain a traditional loan and pay off the remainder of the hard money loan.

Assisting Fix-and-Flip Buyers

The fix-and-flip buyer is an unusual type of property investor because they often don’t know what type of problems they will run into when purchasing an investment property. That means they must have exceeding faith in themselves and their team. The private lender must also believe in the investor’s ability to fix-and-flip the property.

This type of transaction usually involves purchasing, fixing and selling immediately. The philosophy works best when the buyer can obtain a property at an undervalued price, fix the problems within a few weeks and sell for a much higher price. Hard money is the perfect loan option because the properties are meant to be flipped quickly.

To make the loan even more appealing, the investor pays only the interest on the hard loan during the renovation period. The buyer will repay the total loan amount when the home is updated and sold for a profit. The investor knows from the beginning that the loan is just a percentage of the ARV.

Creating Advantages

Conventional loans can be difficult to obtain, and they often involve a lengthy paperwork process that can mean property investors lose the homes, buildings or lands they had their eyes on. Hard money loans, on the other hand, can be obtained much more quickly. Some private money lenders issue the funds within a week as opposed to the traditional 60 to 90 days it can take to get money from banks.

For buyers that are competing for properties, this can be a significant advantage. Sellers want to close quickly, which is what a hard money loan will allow the real estate investor to do. A chance to close within days instead of weeks may be all that distinguished the buyer’s offer, and it can often help them win the deal. Here are some of the other advantages that hard loans offer buyers:

  • Interest: There is a higher interest rate compared to traditional loans, but that is because these loans come with a higher risk. While bank loans may come with a life of 10 years and an interest rate of 6%, they may also have an early pay-off penalty attached to the loan. Hard money investors can require between 10% and 15% interest. Interest is often based on the length of time buyer and lender have worked together and the risk perceived by the property loan.
  • Payments: Conventional loans usually require that payments commence 30 days after receiving the money from the bank. The payments are structured and require payment of interest and principal right from the beginning. For the hard money loan, monthly payments are interest-only until the property is sold. The real estate investor will then repay the entire loan in a lump sum.
  • Qualifications: Since hard loans are from private money lenders, there are no stacks of paperwork to fill out, and the buyer’s credit score does not have to be in the exceptional range. The investor borrows money based on a plan that shows how they will use the funds and how they will implement a payoff at the end of the project. Whether the borrower wants to improve the property for sale or for future tenants, the lenders look at the amount of collateral the property can immediately provide as the basis of the loan. This process can become even more streamlined if the lender and buyer have previously worked together.
  • Credit: Many buyers watch their dream of owning property fly out the window because of low credit ratings. Hard money lenders are not as interested in credit ratings as banks are, and they don’t base their lending decision on any type of minimum credit score. Private money lenders look instead at the property’s equity as collateral.

Differentiating the Loans

Although there are many different types of lenders and private loans available to property investors, the most popular hard money financing come in three types. Here is a short explanation of each of the three:

  • Bridge Loans: The bridge loan is used for financing a real estate property for a short time, usually between 3 weeks and 3 years. As the loan’s name implies, the funds are meant to bridge a short-term gap between minor commitments and some long-term financing funds. The bridge loan’s advantage over the other two types of hard money financing options is that these loans allow a borrower to buy property without a sales contingency.
  • Mortgage Refinance: These refinancing hard money loans are primarily used when a real estate buyer has an existing loan on an investment property and wants to swap out for a new one with better terms. The investor uses the new loan to pay off the outstanding funds from the old loan, and all future payments will go to the new lender. This loan can benefit long-term loans by lowering monthly payments, creating tax benefits, or consolidating debts.
  • Equity Loans: The equity loans became popular when the Tax Reform Act of 1986 eliminated interest deductions on consumer transactions, and they are still popular today. Homeowners can obtain equity loans that borrow against their home’s equity, and their house then becomes the loan’s collateral. At the same time, an investor can use the hard money equity loan to lower interest rates on other loans they already have. With capital already established, these are the most accessible loans to obtain.

Understanding the Loans

Hard money loans through companies such as HML Solutions are an excellent option for real estate investors that want short-term financing with quick availability, and they come in three types to satisfy almost every property buyer. Whether the property is ready to go, or the buildings are in dire need of repairs, you can find the funding you want. Property investors don’t even have to worry about bad credit scores; they just need to have property worth the collateral amount.

Now you know the basics of hard money loans, and how they can be a benefit to you and your portfolio, you can choose the type of loan that best fits your property purchasing needs. Whether you work with buy-and-hold properties for long-term investments or purchase fix-and-flip buildings for quick investments, you should consider hard money loans as your financing solution.

Can Bridge Loans Be Used as Mezzanine Financing?

Prosperous and expanding companies in Florida have many commercial finance options at their disposal. But they must think of a few important factors when choosing the kind of loan they borrow. Their first priority is choosing lenders that best meet their needs. They also need financing that offers the most favorable conditions, rates and terms. To achieve these goals, it’s wise to evaluate both available lenders and the type of loans available.

Companies in the Sunshine State often seek funding from traditional banks, conventional institutions or private money lenders in Florida. Factors such as property types and locations can affect available options, but credit scores also affect a firm’s eligibility. The firm must look at the terms and rates of any loan offered by a financial institution. The application and evaluations processes can take some time for both prospective lenders and borrowers. Yet it’s time well-spent when your firm benefits from a powerful lending solution. With such a big decision at hand, your company may benefit from having expert assistance to guide you.

Commercial bridge and hard money loans provide some useful advantages – namely faster financing and shorter closing periods. But did you know that mezzanine loans can behave like bridge loans? With their unique structures and advantages, these funding solutions may be excellent alternatives for firms that need powerful financing in a short amount of time. This extensive guide from Hard Money Loan Solutions can help you make sense of your options before you apply for funding.

What Are Mezzanine Loans?

As you know, a mezzanine is an intermediate level that sits between two primary floors in a building. Similarly, a mezzanine loan falls between equity and debt financing by blending key features of both. Instead of using property or other traditional assets as collateral to secure this loan, a company offers a portion of its equity. Should the company default on the loan, the lenders can seize that equity. This provides a bit of security for the financing company because it will recover some of its funding if the company doesn’t repay.

But mezzanine financing offers advantages for borrowers.  With a strong financial position, a company can safely accept a loan without jeopardizing its shares. Meanwhile, it can hold onto most of its remaining assets. Sometimes, this financing registers as equity on a company’s balance sheet – in these cases, debt levels may appear lower. These loans have other great benefits:

  • Interest payments as deductible expenses
  • Several repayment options
  • Less equity needed to fund projects

How Do Mezzanine Loans Act as Commercial Real Estate Bridge Loans?

You may remember that commercial real estate bridge loans serve as short-term financing. These loans can go by many different names – interim financing, gap loans or swing loans. Regardless of what they’re called, they can fill the need for funding until more permanent financing can be secured. In some cases, a borrower may need to clear an already existing obligation during the length of the loan. Terms on bridge loans usually last no more than one year.

Most Florida companies use bridge loans to finance real estate purchases or renovations. Many use the property being purchased or improved as collateral, but other assets can become collateral for these loans. This funding allows the borrower to move forward with its projects while it gets long-term funding. Bridge loans can be used on commercial real estate and investment properties, but they’re often used as solutions when investors must make improvements prior to selling. The investor can use proceeds from the property’s sale to repay its bridge loan.

A mezzanine loan in Florida works a little differently, but it can fulfill similar purposes. Like a bridge loan, it can serve as temporary financing. The major difference is that it doesn’t use assets or property as collateral – instead, the borrower’s company is equity for the loan. Of course, the borrower only needs to worry about the lender claiming that equity in the case of default. A healthy financial position ensures that default isn’t a concern.

What Does a Typical Mezzanine Loan Look Like?

Mezzanine loans are meant to fill immediate financial needs. That’s why they have shorter terms – ranging from three months to three years. However, most only come with three- to six-month loan periods. Depending on the lender, you may be able to work out more flexible terms if you provide a favorable offer.

Most mezzanine loans come with interest rates between 15% and 20%. That’s because of the greater amount of risk that lenders assume with this financing. But again, keep in mind that it’s only meant as short-term funding. It only requires interest-only payments throughout the length of each loan. Your mezzanine loan in Florida also comes with lower costs and a shorter closing period. Because they’re built for speed, they’re also processed more quickly than traditional bank financing.

To see how a mezzanine loan works, let’s look at an example. Company A has its eye on purchasing Company B, a small boutique specializing in high-end couture. Company B’s revenues make it an attractive investment, but Company A can only get 75% LTV financing. Mezzanine financing can supply money for the remaining 25%. And as a bonus, Company A can even refinance that debt with a traditional loan or pay it off altogether.

When Are Mezzanine Loans an Ideal Option?

Commercial real estate bridge and hard money loans are intended as speedy short-term funding. Borrowers with less-than-ideal credit scores can sometimes opt for stated income loans. As you may recall, stated income real estate loans are based more on the property being financed than the borrower’s credit history. For one of these loans to be approved, a property’s value must be greater than the loan’s mortgage, taxes and insurance. Stated income loans are usually granted more quickly because they don’t involve as much paperwork or document. But borrowers pay more because of their credit.

A mezzanine loan in Florida may be a better solution in many cases. They can provide money quickly like bridge, hard money or stated income loans. Clients who use this type of financing are usually established firms well past their startup stage. They seek this funding to help them diversify and grow into new opportunities and markets. Moreover, their companies’ financial health is strong enough to provide the equity needed to secure these loans.

These short-term loans are meant to address immediate needs. They can fund real estate projects that must move forward quickly – usual purchases and renovations prior to sale. Mezzanine financing can provide funds for a wide range of properties:

  • Apartments or multifamily housing
  • Restaurants
  • Retail stores
  • Industrial/manufacturing facilities
  • Hotels
  • Self-storage facilities
  • Office buildings

What Are Other Benefits of a Mezzanine Loan?

We’ve talked about some primary benefits of a mezzanine loan in Florida. But they have a lot more to offer. Since they’re a mix of debt and equity financing, they don’t impact a company’s debt load in quite the same way. You may remember that mezzanine loans can make debt look smaller on a balance sheet. Now, think of how this can impact the bottom line. With increased returns on equity, the company looks more attractive to potential investors.

Earlier, we also mentioned interest-only payments required on mezzanine financing. This, of course, can make your monthly debt payments lower. You may end up with greater cash flow – a plus for any firm whether it’s new or established. And greater cash flow enables your company to safely fund operations and handle other expenses. Besides critical short-term needs, this financing can free up money for other purposes. The borrower firm has more resources to pay down more of its debt, invest in additional projects, diversify into other markets and put more funding into marketing.

Another key advantage of mezzanine financing is speed. When opportunities appear, you must act quickly to seize them. Mezzanine financing lets you do this by providing money for a purchase or project now rather than wait on other slower forms of funding. By the time you might get a traditional bank loan, the opportunity that presented itself can disappear just as fast. You can still pursue loans with more favorable terms in the meantime, but mezzanine financing lets you move fast. And when you’re competing against other prospective investors, that can make a huge difference.

Working With a Lender for Your Mezzanine Loan

With the unique nature of mezzanine loans, it’s essential to work with an expert who can guide you through the process and help you choose the best funding options. Hard Money Loan Solutions is a Florida firm that connects commercial clients with private lending and hard money loan options. HML Solutions can provide short-term and long-term funding with convenient services and quick turnaround times.

At HML Solutions, we move at the speed of business. Our teams of hard money loan experts are client-focused and dedicated to getting you funded. We offer loans of up to $50 million with secure and confidential processing plus fast closings. Contact us today to discuss your commercial finance needs. We’d love to discuss how we can help your firm grow and succeed.