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 St. Louis!
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 St. Louis, 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 St. Louis, 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
Borrowing money usually requires you to do some research on the different lenders out there. Once you’ve chosen one, you’ll need to go through the application process. Before you being the process of borrowing money, you’ll want to ask yourself a few questions first.
- 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?
Once you have really sat down and established what you will need, you’ll want to do your homework on trusted lenders. Each lender works a little bit differently. When researching soft or hard money lenders in St. Louis, you’ll want to learn about…
- The interest rates
- The loan terms
- The origination and lender fees
- Qualifications to receive funding
- What other people have to say
If you are unsure about who to work with, talk to other investors who have been in your shoes. Getting first-hand accounts will better prepare you when choosing your lender. Don’t just choose the first one that pops up, take some time to do your research, interview the lenders who can offer what you are after, and choose the one who is best suited to you.
What You Need
When seeking a hard money loan for your real estate investments, you’ll want to have all your ducks in a row before filling out the application. First, you’ll need to have a well thought out and concise plan to show to the lender. You’ll need to show what you plan to profit with a clear exit plan in place. To get the funding you’re after, you’ll need to have a down payment and equity in the property. Hard money is asset-based, which means they will require some collateral on the loan. The lender will also want to see that you have some cash reserves and the ability to make your loan payments each month as well as cover the other expenses of the property.
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.