Hard money lenders are generally preferred by real estate investors over large financial institutions such as banks when it comes to acquiring loans. The following are the main reasons:
- Private money lenders process loans significantly more quickly, which is ideal for someone looking for a quick loan.
- Hard money lenders have more freedom and fewer requirements than banks.
Despite the relative ease with which hard money lenders issue loans, there are still a number of criteria that impact their decision to do so, including:
- Ability to repay loans: Customers defaulting on their loans is something that most reputable hard money lenders attempt to avoid. That is why they must examine their current income and debt-to-income ratio. This is due to the Dodd-Frank Act, which limits loans to borrowers who are unlikely to default.
- Existence of binding rules and regulations: Fair lending laws exist. The CFPB, the Department of Justice, and federal and state regulatory authorities enforce TILA and RESPA more stringently. These laws were enacted in order to provide the greatest and safest loan experience possible. They are designed to safeguard both the lender and the borrower.
- Documentation: A hard money loan requires less documentation and paperwork than a traditional loan.
- Previous Applications: It will reveal how effective the borrower is at repaying their obligations. Your application will be accepted if everything is in order.
- Proof of Funds: In both employed and self-employed situations, a lender will need to identify and examine the source of income.
To read more about the important things lenders ensure before they release the loan, click here.
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