Money Loans

Hard Money Loans in Florida: What You Need to Know

Hard money loans are increasingly the financing of choice for many in Florida who quickly need money to close on a real estate deal. Why hard money loans are Florida’s best-kept real estate secret is obvious-they’re the first choice of investors, house flippers, and small business owners who can’t let anything stand between themselves and opportunity. Hard money loans, rather than relying on your credit score, are primarily based on the value of the property you are using as collateral. Lenders consider the value of the property, not your financial history.

In Florida’s hot housing market — whether a fixer-upper in Miami or a commercial property in Tampa — speed is the name of the game. Hard money lenders can underwrite and fund deals in days, offering buyers a competitive advantage.

Such loans are short-term, usually lasting six months to several years. They generally have more flexible terms than banks, but also tend to come with higher interest rates and fees. That’s the trade-off: speed and nimbleness in trade for cost. If you require fast cash and possess a property with substantial equity, a hard money loan can help you seize the opportunity to close your next Florida real estate transaction.

How Hard Money Loans Work in the Sunshine State

Florida hard money lending is very similar to hard money lending in other states, but as you would expect, there are some regional differences. From the advanced schools in Orlando, to the beach-paradise in Jacksonville, to the culture in Fort Lauderdale, the Florida real estate market isn’t playing games, especially in today’s market, when homes are getting snatched up left and right. Investors are frequently in bidding wars, and sometimes they win if they can act fast enough. Mainstream financing simply can’t move that quickly, which is why hard money loans still serve as a strategy, rather than as a permanent solution.

It generally begins after a borrower has found a property they want to purchase or refinance. Instead of visiting a bank and submitting themselves to the bank’s vetting process, the borrower contacts a hard money lender, who determines the property’s worth, instead of the borrower’s income, credit score, or other personal financial information. If the numbers work, the loan can be approved and financed incredibly fast, sometimes in just a few days.

Florida Hard Money Loan Types Our best hard money lender in Florida focuses on providing loans to borrowers who own property in Miami and the surrounding counties. Some only work with experienced real estate investors, while others are open to first-timers. Some operate in residential properties, and others in commercial real estate. You’ll want to know the nature of the lender you’re dealing with to manage expectations.

The specific amount you qualify for is generally determined by the value of the property, a percentage referred to as the loan-to-value ratio (LTV). In Florida, the majority of hard money lenders typically lend with LTVs between 60% and 75%. What this means is, if the home you want to purchase is worth $200,000, you could potentially borrow up to $150,000. It is when the lender keeps the ownership of your home, and if you fail to pay back the loan, they can repossess it.

This may sound simple, but it is a business nonetheless. Lenders are taking more risk and so in turn charge higher interest rates, which can be 9% to 15% or more. Borrowers also pay points, which are upfront fees equal to a percentage of the loan amount. These costs have the effect of making hard money loans more expensive than traditional financing, but for the right deal, may nevertheless be worth it.

Choosing the Right Hard Money Lender in Florida

The lender is as important as the property itself. In Florida, the commercial hard money lending market is filled with both bona fide lenders who provide the goods and those who rarely serve the public’s best interests. So, how do you choose someone who won’t waste your time — or worse, put your deal in jeopardy? Here’s what to consider:

  1. Experience: Find a lender familiar with the Florida market. A good lender can move more quickly, understand local property values, and prevent you from making a mistake that will cost you money. In a perfect world, they have seen several real estate cycles and can provide some expertise along with the money.
  2. Communication: Pick a lender who’s clear about terms, forthright on fees, and accessible when you have questions. Lousy communication when professionals are in the process of applying is a red flag.
  3. Realistic Offers: Beware of a lender that offers exceedingly low interest rates or guarantees you’ll be approved for a loan without seeing the property. Sound lenders ensure on top of this due diligence, including appraisals, will insist on a clear exit strategy.
  4. Terms of Loan: Be sure to look at the repayment date, penalty fees for any late payments, and fees for early loan payoff. Flexibility differs among lenders, so look for one that suits your needs.

Considering these points will help you find a trustworthy hard moneylender in Florida and protect your real estate investment.

When a Hard Money Loan Makes Sense

There are times when hard money loans are not only beneficial – they’re the best thing going. Take the real estate investor who locates a distressed property listed at a price well below market value. The seller is ready to close in seven days, and the buyer doesn’t have time to seek out bank financing. In that situation, a hard money loan can help seal the deal before someone else does.

Another popular use is house flipping. Panama City real estate is known for the popular tactic of flipping homes fast and then selling them for a profit. Traditional banks tend to balk at lending for properties that need work, especially if the borrower’s income falls short of their stringent benchmarks. A hard money lender will assess the potential value after renovations and then provide financing based on that.

Hard money loans can be beneficial for someone who has poor credit. Perhaps you lost your home in foreclosure years ago or experienced financial issues during the pandemic. Banks may be hesitant, but a hard money lender may be willing to work with you if the deal is solid.

They are not for everyone, though. These loans are short-term, and if you don’t have a good exit strategy (i.e., refinance or the ability to sell the property), you can find yourself in hot water once the loan term ends. That’s why it’s key to have a plan in place before borrowing this type of financing.

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