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While you can apply for traditional mortgage financing when you buy commercial properties, you can also use alternative ways to borrow the money you need. For example, you can use a hard money real estate loan.
Here, you borrow money from specialty lenders or private investors. These loans work like regular mortgage products—you pay interest on the money you borrow—however, they typically have more customizable conditions and terms. You also have to provide a 'hard' asset, such as the property you want to buy, as collateral for your borrowing.
When might a hard money mortgage be a good move?
1. You Need a Faster Way to Borrow
You need some time to apply for a regular commercial mortgage and to get approval. This process can take weeks; if you have any problems or delays during your application, then you'll have to wait even longer to get the money you need to buy a property.
Sometimes, you need to move faster than this. For example, if you need to raise money fast, say to buy a property at auction, then you might not have time to wait for a regular mortgage loan. You could miss out on a good opportunity.
Hard money borrowing works faster. As long as you meet a lender's conditions, you could have approval and access to funds in just days.
2. You Can't Get a Regular Commercial Mortgage
Traditional commercial lenders set stringent application standards. If you can't meet these conditions, then you won't raise the money you need to buy your next property.
For example, if your credit score doesn't meet lender requirements, then they might not approve your application. You might not be able to borrow money if the property you want to buy doesn't meet lender conditions.
Hard money lenders are more flexible. While they care about your creditworthiness, they are more concerned with your asset values. They give out mortgages based on the collateral you give them. They are happier to finance non-standard properties.
3. You Don't Want a Long-Term Loan
If you intend to keep a commercial property after you buy it, then traditional mortgage financing is a good option. However, you might want not want this type of long-term borrowing if you're buying a property to flip it fast.
Here, you might want a short-term loan that you can repay as soon as you sell the property after you've done work on it. A hard money loan gives you this option. You don't have to be tied to these mortgages for years but can negotiate a suitable term with the lender.
To find out more about your hard money borrowing options, talk to a commercial real estate loan professional.
Share20 June 2023
