HARD MONEY LOAN VERSUS ALL CASH OFFERS

Real estate investors, people with questionable credit and those needing a transitional bridge loan often use hard money loans for financing. Offered by investment groups, they need an equity investment greater than commercial loans but they are easier to obtain.

Offers

A seller faced with either an all-cash offer or one backed by hard money needs verification of funds from the all-cash buyer. This comes in the form of bank statements showing the money is currently in the bank, and has been for a period of time. A hard-money offer must be stated in the purchase contract’s financing section, and is accompanied by the lender’s preapproval letter. Both types of purchases usually give the seller a short closing window.

Financing

A hard-money loan is subject to a finance contingency, and an appraisal is done to verify that the property is worth the amount being borrowed. While a hard-money lender requires a substantial down payment, the lender still must verify the property’s existence and value. An all-cash offer has no appraisal attached, unless it’s at the request of the buyer, but the appraisal won’t affect the sale unless the buyer writes into the contract that the property must appraise at, or above the purchase price.

Costs

Hard-money loans are issued at rates above those of commercial loans. Their terms are anywhere from a few months to several years, but seldom are they for the long term. Fees are greater than those charged by commercial lenders. The most important borrowing criterion for a hard-money loan is the amount of equity the borrower is investing — hard-money lenders may require up to 35 percent down. Hard-money loans do not rely on the borrower’s credit standing for approval. Cash buyers do not face these conditions because they are using their own funds.

Source: https://homeguides.sfgate.com/hardmoney-loan-vs-cash-offer-81598.html