Connecticut hard money loans may be a convenient way to obtain quick cash for the purchase of the real estate. However, they come with much higher expenses, down payment requirements, and clauses that might raise your chances of defaulting on your loan. Let’s take a look at some of the positives and downsides of using hard money to finance a property before you make the decision to use it.
Connecticut Hard Money Loans: Pros
Collateral-based lending is the sole type of loan available.
The property that serves as collateral for the loan is referred to as collateral which implies that when choosing whether and how much to lend, the lender focuses the greatest emphasis on the property itself rather than on a review of your income, assets, or credit payment history, among other factors. In most circumstances, hard money lenders examine the state of the property and determine how long it would take to sell it in the event of a foreclosure, or how long it would take to repair and rent it out after it is purchased. The Connecticut hard money lender will usually provide you with a terms sheet that includes the expenses of closing, the rate of interest, as well as any prepayment of penalties in the event that the property is deemed suitable by them.
There are no or minimal credit and income requirements.
Hard money loans do not need the submission of extensive verification of income or credit. You may still be required to complete some sort of application in order to specify the type of job you perform, and you should be prepared to answer any follow-up questions that may arise over the course of the process. You will go through an online application process that is similar to that of a traditional mortgage loan if you are applying for hard money loans through mortgage brokers. For the main reason of determining whether you have any type of liens such as a state or federal tax lien, Connecticut hard money lenders are also going to request a copy of your credit report in most cases so that this could be attached to the home that you are looking for. They may also charge you a rate that is determined by your credit score, although the terms are usually flexible as well.
The assets used for the down payment, expenses, and reserves do not need to be verified in any way.
If you have a hard money lender, he or she is unlikely to inquire about the source of the funds for your down payment or closing fees. Your loan will be financed as long as you are able to provide cash for the down payment as well as any additional fees that the investor may impose, wherein conventional lenders provide investment loans, which are totally different from what we are talking about here. With typical lenders, you would be required to show bank statements and confirmation that all of the cash for your investment property is coming from your own personal sources of income. This flexibility is especially advantageous if you are acquiring a house with money that comes from a range of different financial institutions.
Quick access to funds.
Unlike traditional mortgage lenders, hard money lenders are not subject to the same necessary waiting periods that are mandated by federal law for traditional mortgage loans.
Interest can be made as to the basis of payment.
Hard money lenders frequently offer you to make interest-only payments during the payback period in order to alleviate the agony of paying double-digit interest rates. If you pick the interest-only payment option, you will not be required to make any principal payments, and your loan balance will remain unchanged. If you only intend to use the loan for a limited length of time, this may be a viable alternative for you. Just bear in mind that if you choose to make interest-only payments on your loan, the loan balance will remain the same as it was when you took out the loan in the first place.
Connecticut Hard Money Loans: Cons
Typically, they need a sizable down payment.
Investors will need further skin in the game in the form of a larger down payment from you which is why in most circumstances, you’ll need to secure at least 30% of the purchase price, if not more, depending on your credit position and the sort of property you’re purchasing.
Closing expenses may be substantial.
You may just have heard of “points” wherein payments are paid directly to the lender which enables you to obtain a lower interest rate on a conventional mortgage. By paying discount points on a conventional mortgage, you may purchase a reduced interest rate, leading to a much cheaper monthly payment. When it comes to hard money loans, the investor often charges points to compensate for the cost of having money connected to your property.
Interest assurances or prepayment penalties may apply in certain terms.
As previously said, investors want to optimize their return on investment, and one way they may do so is by asking you to pay their current rate for at least six to twelve months. Prepayment fines or guarantee costs must be paid regardless of whether you sell or refinance the property during the repayment term, so you must factor these into your net profit if you believe you will sell the property before the time finishes.
Generally not recommended for principal dwellings.
The majority of hard money lenders prefer to provide loans on actual investment properties. If you’re considering purchasing a primary house and require hard money, inform your loan officer early so you don’t waste time negotiating a hard money loan with an investor that specializes in investing in investment property.
Difficulty in the evaluation process.
Additionally, there may be a lengthy house evaluation procedure that involves not one, but two appraisals to ensure that the property’s sale price is backed up by at least two independent agencies. Due to the increased risk associated with credit profiles, lenders may want an additional judgment on the home’s value before agreeing to loan hard money on it.
