Getting to know a little about loans before going out to get one could be beneficial. Understanding the process of how it all works can save time and stress. Also, having the knowledge of different types of loans is very needful and can help potential borrowers make the best decision.
Things to Know about Private Lenders
There are five important things concerning overall lending. Let’s take a look at the underwriting process of hard money lenders. They differ a little from traditional mortgage lenders. Traditional lenders focus a good bit on the credit of the applicant.
A credit score below a 650 will, in many cases be denied. However, many traditional mortgage lenders will use the federal standard and allow a score of 620. Hard money lenders do just the opposite, the credit is looked at, but it does not hold as much weight. A hard money lender will never turn away an applicant due to their credit alone. Indianapolis hard money lenders take the time to advise potential borrowers concerning their credit.
Second, bankruptcies and foreclosures at traditional banks could lower the overall financial ratio. This ratio could include the applicant’s credit score, and financial decisions over the years. So that means bankruptcies and foreclosures could cause the applicant to be denied.
Whereas, at a hard money lender it would simply cause the down payment to increase. If there is a significant pattern in the negative behavior, then yes the lender may take a hard serious look. However, normally it will simply require the applicant to present references who can speak on behalf of his financial decision making.
Third, charges and fees are applied when applying for a loan. There are various fees. One fee is called the origination fee. These fees are used to create the account in order to present the loan.
It can amount to about 1% of the total costs of the requested loan
Another charge is the cost of the appraisal of the property which could be between $300 and $500, or higher. An appraiser will evaluate the property, then look at the market value in the area and come up with an estimation. And then you have the title search fee. This fee could cost between $75 and up.
The appraisal charge is used for assessing the property. Property assessment is important to determine the value of the estate. Without an assessment there is no way to fairly and accurately know the value of the property.
Without this information the property could be valued less or more than what it really is. Some of these fees can be waived by private lenders. At Indianapolis hard money lenders they are willing to work with the client in regards to this. In many cases they are not waived by traditional mortgage lenders, however they do have the option of adding some of them to the property balance.
Fourth, down payments may be waived with traditional mortgage lenders. The reason why is due to the longevity of the loan. With hard money lenders a down payment is required for basically every applicant. The down payment could amount up to 30% of the amount of the requested loan.
And fifth, in regards to the repayment date traditional mortgage loans are between 10 or 15 years. The borrower has plenty of time to pay back the loan, making payments every month. Hard money loans are the opposite, they’re short term. The lender and the applicant must agree on the loan repayment date.
The lender usually makes sure the applicant can pay the loan back by that date. If the applicant sees that he/she can not make the payment on time the lender needs to be notified as soon as possible. In most cases the lender will extend the date, with or without a penalty fee.