2020 – the year that brought the world to a standstill. COVID -19 has affected people, businesses, and governments alike. The unexpected emergence of this pandemic has posed several challenges. While we need to stay safe during this phase, it is equally important to manage our necessities. A crisis this large has affected people’s ability to earn a regular income and pay bills.
Borrowing money during this period has inevitably become more challenging to banks and lenders, the reason being uncertainty around the world. However, this should not let you down. There are several private lenders and financial institutions that give loans to help manage the cash crunch during these difficult and uncertain times. One such product they offer is the hard money loan.
Credit-worthy businesses and individuals can access credit to meet their short-term liquidity needs due to the lockdown. Salaried professionals, small business owners, and retailers facing financial constraints can also find hard money loans.
Hard money lending had witnessed a significant change in its pattern during March. Maximum loan amounts that can be borrowed have lowered due to the uncertainty of when the outstanding amount will be paid off. Lenders and financial institutions are choosing to keep more cash on hand and lend lower amounts until they start receiving payoffs from their current borrowers.
Despite all this, lenders are still giving loans to people who approach them. Let us take a look at how hard money loans can be obtained during COVID-19.
What is a Hard Money Loan?
A hard money loan is a loan backed by a tangible property that generates a profit to repay the borrowed money quickly. Since they are a form of private loans, the funding is usually provided by non-banking financial institutions or private lenders.
Hard money financing is used by real estate investors who require short-term funding for an investment deal.
During the COVID-19 issue, hard money loans have become the go-to option for individuals who cannot borrow money from a bank. There could be several reasons – maybe their credit is not great, or the requirement does not qualify a traditional lender’s strict criteria.
Since these loans have a relatively short span and greater risk associated with them, the interest rates are generally steeper compared to conventional property loans.
How to Apply for a Hard Money Loan During the Lockdown?
Like any bank or financial institution loan, you will need to apply and get approval for a hard money loan from the lender. While your credit score may not always be a deciding factor for the money, having a good one can imply that you are a lower risk.
To obtain a hard money loan during the COVID-19 pandemic, you should have significant liquidity and stronghold in areas of personal credit or be experienced in real estate dealings.
Most of the time, hard money lenders look for rehab and real estate experience in the borrower. Providing proof of your qualifications as a successful real estate investor can improve your chances for loan approval and also put you in a better position for negotiations on the interest rate.
Another point to be considered while applying for a hard money loan during the lockdown is the collateral. Another thing to remember: Like traditional lenders, hard money lenders require property insurance.
But, in most cases, you will need a builder’s risk policy rather than the more affordable property and casualty insurance a traditional mortgage requires. It is more expensive, has unique coverage, and not all insurance brokers offer it.
What are the Eligibility Criteria?
In these trying times, you can fall short of money to take care of your expenses. In such situations, obtaining a lockdown loan can be the answer to solve your cash crunch. Though obtaining a loan may seem easy, lenders are choosing to provide the best quality loans only to the most qualified borrowers.
Due to the uncertainty of how long the COVID-19 recession goes, loan-to-value (LTV) ratios and property valuations have been slashed by around 5-10% of where they had been in February.
Your property’s value will determine your capacity to repay the loan. As long as the collateral value is sufficient, hard money lenders tend to overlook low credit issues.
Who to Contact?
In order to obtain a hard money loan, you must get in touch with private investors or financial institutions. Though it is not always tough to find individuals or companies that give out loans keeping properties as collaterals, it is essential to get a verified source. Real estate agents can be ideal in this regard. Above all, it is important to do thorough research on several lenders, making sure of their credibility and their track record of hard money loans, to avoid future hassles.
Loan Repayment During COVID-19
Due to a lack of proper income channels, you may face a cash crunch and even find it difficult to repay loans during the COVID-19 crisis. Here are some steps you can take to navigate your finances or buy some time over the next few months until this pandemic lasts.
Ask for Assistance from Lender
You have an upcoming payment on a mortgage you took or another loan but are unable to pay for either. What would you under these circumstances? According to experts, you should try reaching out to your lender to talk about the available options. You can sign up for paused payments with a tenure of up to 12 months or ask them to move your payment due date or waive off late fees.
In case you have a source of income, you can refinance your mortgage. Transferring the amount to a personal loan or any other loan product with an extended payment timeline can be helpful. You could also look out for options that have lower monthly payments. If you meet the requirements, you may qualify for 0 percent interest rates, as per the latest directive from the Federal Reserve.
- Cut Down on Discretionary Spending
In these trying times of financial hardship, it is essential to figure out and cut down unnecessary expenditure. Take a look at your bills and spending to help you determine which expenses need to be cut.
- Retirement Account Withdrawal with Zero Penalty
The government is currently working on a $1 trillion economic relief package that would offer citizens financial assistance under certain income bands. It might be possible to withdraw up to $100,000 from a 401(k) retirement plan or any other traditional plan, minus the 10 percent penalty charged for withdrawals before the person is 59 ½ years old. Though this benefits still a work in progress, individuals who have been impacted due to the coronavirus pandemic may qualify.
A hard money loan can be a great option in case you have credit issues and are unable to secure bank funding. You can also avail this loan when you need quick access to funds within a reasonable time. All you need to have is a credible lender who is willing to provide finance.