Do you know the difference between soft money and hard money lenders? If you want to finance investment real estate, you’ll want to understand the differences so you can determine which borrowing method will be best for your situation. In this post, we will break it all down so you can make the right decisions when buying real estate in Milwaukee!
If you’re like most people, you don’t have hundreds of thousands of dollars laying around, just waiting to be spent on a new property investment. If you want to buy real estate in Milwaukee, you’ll likely have to borrow some money. Both soft and hard money loans are viable options, however, they are quite different and should be chosen based on your needs and circumstances. Whether you choose to use a bank or a private lender in Milwaukee, make sure that you do your homework and ask all of the right questions.
What Is A Hard Money Lender?
Hard money lenders provide short-term bridge loans that are backed by some sort of asset. When attempting to acquire hard money, the borrower’s credit score isn’t as important as they have provided collateral and are absorbing much of the risk. The repayment time for these loans is usually much less than a soft money lender. You’ll likely need to pay back your hard money loan within a year or so. These kinds of loans are ideal for fix-and-flip properties and other types of investment that can be paid off quickly.
What Is A Soft Money Lender?
Soft money lenders are your traditional loans from banks and credit unions. It is usually based on your credit score, debt to income ratio, and ability to pay back the loan. For example, your auto loan is soft money. You will typically have a longer period of time to pay it back, with the loan being backed by a certified lending institution. Getting a soft money loan is usually easier than getting a hard money loan and the interest rate is usually much lower. These types of loans are meant to be paid back over time as opposed to a hard money loan which you will want to get paid back right away.
How To Get The Borrowing Process Started
When you borrow money you are supposed to do at least some research on all sorts of lenders that are out there. When you’ve made your choice, you go through the application. But before you begin the process of lending money, you’ll want to have these questions answered:
- What do you intend to do with the loan?
- What do you have for collateral?
- Do you have a business plan?
- How long until you can repay the loan?
- How quickly do you need the cash?
When you have truly decided what it is that you need, then you should do your homework on the lenders that have gained trust by people. Each of them works a little bit differently. When you are looking into soft or hard money lenders in Milwaukee, you’ll want to take these things into consideration:
- The interest rates
- The loan terms
- The origination and lender fees
- Qualifications to receive funding
- What other people have to say
When you aren’t sure about who to work with, you can always go and talk to other investors who’ve been through the same trouble. First-hand accounts will give you a better knowledge about choosing the right lender for you. You should never just take the first one that pops up, take your time and do the research, interview all the lenders that you are interested in and then make your choice.
What You Need
When searching for a hard money loan for your real estate investments, you want to have everything decided and thought about before you fill out the application. First off, you’ll need to plan out everything and then give that plan to the lender. Show what and how you plan to profit and have a clear exit plan. In order to get the funding, you should have an equity in the property and a down payment. Hard money is based on assets, and that means that the lenders will require some collateral on the loan. They will also have to ensure that you have some cash backup and that you are able to make your monthly loan payments, as well as other expenses.
Resources For Investors
Fit Small Business has created a guide to The Best Hard Money Lenders in 2019. In this guide, they have researched over 20 of the most popular hard money lenders and provided detailed information about the top 8.
The Private Money Lending Guide is another great resource for connecting lenders with borrowers. The provide lender listing throughout the United States and can help with many types of real estate loans.