A hard money loan is a term that refers to borrowing money without going through traditional lenders to purchase real estate. The property serves as security for the loan, which is approved based on several other factors. When consumers lack the time or cannot obtain lender approval through the usual route of a traditional loan, hard money lenders can provide an alternative.

When done correctly, real estate investments may be quite profitable if acquired at the right price and with every step and number properly handled, from purchasing to the closing of the restored property when it is sold. Given Palm Beach’s laid-back and peaceful lifestyle coupled with some of the nicest beaches in the country, it is unquestionably one of the best areas to invest in real estate. Palm Beach hard money loans are ideal for those interested in real estate flipping. To be a skilled flipper may give you an edge when it comes to obtaining a hard money loan. Alternatively, teaming up with an accredited investor can help you establish credibility and trust with a hard money lender. While it can be used to fund the purchase of primary property, it is highly recommended that borrowers get a new loan as soon as possible.

This article will discuss the essentials of working with hard money lenders and the pros and cons of Palm Beach hard money loans.

Ratio

Loan-to-value or LTV ratios are most often low with lenders of hard money in Palm Beach, ranging between 50% and 70%. The loanable amount divided by the property’s worth yields the ratio, which indicates to the lender whether the loan is within the intended range. These ratios will show their ability to avoid incurring loan losses. Certain lenders will evaluate the after-repair worth and lend money that will base on that value.

Needed Assets

For the most part, hard money loans are based on assets. Investors must recognize that the property’s value is significant to Palm Beach hard money lenders. Your credit history is not much of relevance since these lenders profit from the high interest rates charged to borrowers with a poor credit score.

Terms

Borrowers seeking short-term loans of up to 12 months can turn to Palm Beach hard money loans. Furthermore, some of these lenders may be ready to finance renovation charges. Private individuals or investment funds may fund these loans. However, borrowers will be paying additional for these loans with down payments of 10%, 20%, or even 30%. Hard money lenders are aware that borrowers usually have a bad credit score and have few other options to get financed.

Costs

Borrowers will be paying a much higher interest rate for Palm Beach hard money loans than traditional loans. The interest rates are often between 8% and 12%, as this type of loan is considered high-risk. The other fees that are associated with these loans include the origination fees, which would be charged in points. Each point equals one percent of the loanable amount, and hard money loans can carry up to eight points. There will almost certainly be additional costs for appraisals and paperwork processing, and the insurance for the builder’s risk will undoubtedly be necessary.

Penalties 

Prepayment penalties are not unusual when you obtain for Palm Beach hard money loans to repay a loan prior to the agreed-upon terms. These loans are typically structured so that the payments are applied to the interest first and then to the principal amount as the loan nears its completion. Hard money lenders assume risks; nevertheless, their consequence for a failed loan is seizing and selling the property which was made as collateral.

Pros and Cons of Availing for Palm Beach Hard Money Loans

The Pros

The COVID-19 pandemic amplified a population trend that had been occurring in Palm Beach for the past years. This has increased the market’s appeal to investors. Buyers with cash on hand can gain a substantial advantage when purchasing real estate. However, not everyone has ready access to cash, and that is where a hard money loan might help. Palm Beach hard money loans serve as a source of money to assist you in purchasing the property you want.

A hard money loan obtained from a local hard money lender, for example, can:

1. Remove the need to undergo the traditional bank financing route. 

Bank financing in Palm Beach can take up to three to five months.

2. Obtaining approval for loans is an easy process. 

Because of the high demand and abundance of available deals, banks in Palm Beach can be exceedingly tricky to work with when it comes to loan approval. Additionally, they frequently employ a more rigorous approach when assessing underwriting paperwork. The application and approval process for a hard money loan is definitely quicker and much more straightforward.

3. Benefit from local fix-and-flip possibilities. 

There is a significant advantage to repairing and flipping properties in Palm Beach. Many of the prospective buyers who relocate to the area are unfamiliar with the area’s contractors and subcontractors, suppliers of materials, and the regulations necessary to accomplish restoration work. As a result, the fix and flip cost in Palm Beach is higher than in other parts of Florida.

4. Funds are available for properties that require extensive repairs. 

This distinguishes hard money loans from typical bank loans, considering that traditional banks would not lend on properties that need repair or that are targets for fix and flip.

The Cons 

1. Repayment Period Is Shorter

A hard money loan intends to swiftly obtain financing, repair, and rehab a real estate and re-list it on the market. As a result, hard money loans typically have shorter repayment terms than traditional bank loans.

Borrowers will be forced to repay loans in months rather than years. This is usually not an issue unless the project is delayed.

2. Expensive Compared to a Traditional Bank Loan

Hard money loans carry a higher rate of interest than bank loans. While the interest rates on a bank loan are often related to market rates, a private loan typically carries a rate up to ten percentage points more than a bank loan. This is not a loan that you would want to have for an extended period of time. Additionally, hard money loans have additional fees, including origination fees, loan servicing service charges, and closing costs.