Advantages of Using Alternative Financing

Advantages of Using Alternative Financing

There are many different ways to invest in real estate. If your focus is on flips and rehabs it is important that you have access to capital.  Using traditional bank financing may not be enough to secure deals you are working on.  You need to ability to close quickly and without any strings attached.  One of the ways you can do this is through the use of alternative financing, primarily hard money loans.  Hard money loans give you the ability to find the capital you need without any of the traditional red tape involved.  There are still guidelines and qualifications involved but not nearly as many as your local lender.  If you are one the fence as to whether or not hard money is for you here are three reasons major advantages.

  • Speed. The number one reason why hard money lending is so popular is the speed in which you are able to close.  Regardless of where you look for deals in almost every case time is of the essence.  This is especially true when dealing with short sales and foreclosures.  Lenders are much more inclined to accept offers that can close quickly and free of any headaches over a lender financed loan.  On average most lender financed deals take roughly 45 days to close.  Not only is this an issue but this extended timeframe opens the door for problems with the loan approval.  By being able to close in ten days or less lenders look more favorably on your offer.  They have been burned too many times in the past by buyers requesting multiple extensions without ever closing.  The quicker you are able to close the more likely that you will get more offers accepted.
  • Approval. Guidelines for investment loans have changed dramatically over the past decade.  It is not enough to have a strong credit score and ample income.  You need to have excellent credit, at least 20% down payment and a low debt to income ratio.  Your income and assets will be picked apart with a fine tooth comb and you will be required to supply multiple supporting documents. If there are any red flag issues it could not only jeopardize the interest rate but even the approval.  It is not uncommon to be involved in the process for several weeks only to find an issue that derails the deal at the 11th hour.
  • Down payment. Another prohibitive factor for traditional loan approval is the significant down payment requirement.  It is not enough to have the 20% down payment.  This money needs to be you’re a dedicated account for at least 60 days.  It is not enough to transfer the funds a few days before your loan application.  If there are any gaps in the seasoning of these funds you will need to start the process over again.  This money cannot be a gift and has to be entirely from your account.  Not only is coming up with the down payment money a hurdle but verifying every large deposit is also a potential issue.  With alternative financing you down need to come up with any funds for approval.  You can use 100% of their funds and close the deal in your name.

The more deals you can close over the course of a year the stronger your business will be.  By utilizing hard money lending you put yourself in the best position to grow your business.