Do you have things you need to pay for? Important things you need to prioritize? Are you having a hard time managing your finances? Well, don’t fret. A loan might just save the day for you.
However, if you need to borrow from a moneylender in Singapore for something far greater because you need to invest, then you can opt for a hard money loan. It is a personal loan, but only larger. A hard money loan is a loan backed by a hard asset, a tangible property that produces a profit to repay the loan quickly. In contrast, a traditional mortgage is secured by the value of the home and backed by the borrower’s ability to repay the loan in monthly instalments over the years to come.
Hard money loans are a form of private loans. The funding is provided by private moneylenders, as opposed to government-regulated financial institutions. Hard moneylenders essentially do what banks do: loan money. The difference is in loan terms, the approval process, and the purpose of the loan.
Who uses hard money loans, and why?
Hard money financing is used by real estate investors who need short-term funding for an investment deal. Good deals go fast, and cash is king. If you don’t have access to enough cash to fully fund the deal, your offer to purchase a property won’t be competitive.
Hard money loans are typically used for one of two short-term purposes:
To finance fix-and-flip deals where the goal is to quickly get your money back and repay the loan. Or to bridge the gap between an investment property purchase and longer-term financing. Buy-and-hold rental property investors often use hard money to acquire and renovate a property and then refinance the debt with a traditional lender to pay off the hard money lender.
Hard money loans have become the go-to for house flippers who can’t borrow money from a bank. It could be that their credit isn’t great or because the deal doesn’t pass a traditional lender’s strict guidelines.
The borrower’s cost of hard money, the interest rate and the loan origination fee, is higher for these reasons. The rates are higher to compensate the lender for the increased risk of the deal.
What hard money loans pay for
A hard money loan is a rehab loan, which means it includes the cost of the property plus the cost of renovation. Legal moneylenders in Singapore require that rehab cost estimates are provided by the contractor who will complete the renovation. And hard money lenders will typically only approve expenses that directly increase the value of the property (luxury items like an extravagant swimming pool wouldn’t qualify).
How hard money loans are disbursed
Funds are distributed in predetermined disbursements or draw as needed by the contractor. The initial disbursement covers the property acquisition cost. Subsequent draws meet the needs of the renovation schedule. For example, there might be a draw to purchase materials and several draws over several weeks to pay for the labour.
How lenders approve borrowers for hard money loans
When applying for a bank mortgage, underwriters make sure you can afford the monthly payments. A property appraiser also needs to make sure the mortgage doesn’t exceed the value of the property. Traditional moneylenders issue mortgages for owner-occupied homes, not investment properties. And it takes 30 to 45 days for the loan to be underwritten by a review committee.
With a hard money loan, the lender is focused on the deal. Do the financials make sense? Are you buying at a discount? Did you budget appropriately for renovations? Have you accurately determined the after-repair value (ARV) to make sure you can sell the property for a profit and repay the loan on time? Typically, a hard money loan can get approved and funded in 7 to 14 days.
Are hard money loans a good idea?
With so many funding options for real estate investment deals, are hard money loans a good idea? The answer has a lot to do with the hard money lender that you’re considering. Look for these things in a moneylender to see if they are one of the best moneylenders in Singapore:
Extensive experience with the type of loan you’re seeking. Reasonable interest rates and fees. Hard money lenders aren’t subject to the strict requirements that traditional financial institutions are held to, so conduct your due diligence. Compare interest rates and loan fees to be sure you’re getting competitive terms.
Enough funding for your loan. There are stories of lenders who didn’t have the promised cash available for a scheduled draw. This is a big problem, as finishing on time is crucial for most investors.
A good reputation. Check those online reviews. Ask other investors for recommendations, and if there are lenders you should avoid. If you can find a reputable lender with good terms, hard money loans can be a good idea. Just make sure you know what you’re getting into and that you can repay the loan quickly after your fix-and-flip.
Are hard money loans worth it?
Investing is an expensive endeavour. Properties are expensive assets to buy and sell and to get the best deals, you need ready access to a lot of cash. Hard money loans have been around for decades because they provide a great source of funding for shorter-term real estate ventures like fix-and-flip properties. Using hard money can give investors leverage to do bigger deals, and using leverage wisely is key to building wealth.
It is all about the numbers. The cost of a hard money loan or any other form of financing. If you don’t have buckets of cash sitting around, it is just another cost that needs to be added into your calculations when determining if the deal will deliver the profit you need to meet your investing goals.
Invest in your goals now, the SG money lender, yes the moneylender, will help you in your personal and business endeavours. Visit their website now, and start investing!