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Comparing St. Louis Commercial Lenders: Hard Money Lenders vs. Mortgage Brokers vs. Local Banks – Your Questions Answered

    Did you ever want to do a creative real estate deal but feel confused by the different types of lenders out there? Each lender offers loan products structured for specific purposes.  Which one can give you a loan perfectly suited for what you want to accomplish? This Q & A might clear that up for you.


    What is a Hard Money Lender?  

    A hard money lender provides short-term business purpose loans for rehabbers and landlords using the BRRRR method. The loans are for real estate investing only – no personal loans, no auto loans, no long-term mortgage loans for a personal residence.


    When should you use a St. Louis Hard Money Lender?

    When someone finds a distressed property, makes an offer at a discount, and plans to fix it up either to sell it or to refinance and rent it out, a local hard money lender is a great source for fast funding to make it happen.


    Is it smart to get pre-approved?

    Of course! If you can go out looking for properties armed and ready with proof of funds you have a huge advantage. 


    How is a hard money loan structured?

    It’s usually a 6-month, interest-only, mortgage loan at 12% interest, with the purchase price and rehab funds combined in one loan. An origination fee, typically 3%, is paid at the beginning or end of the loan. Interest-only payments of 1% are due monthly.


    What properties can I buy with a loan from a local hard money lender?

    Single family homes, duplexes, or small multi-unit apartment buildings are preferred by St. Louis hard money lenders like FasterFunds Lending. 


    What about storage units or large apartment complexes?  

    No. To get a loan for that type of investment, you are better off turning to a national hard money lender.


    Can I get a hard money loan to fix up a house while I’m living in it?

    No, a hard money lender is not licensed to do residential loans. The regulations are different. 


    What if I want to rehab the house before I move into it?

    There is a way to use hard money for the rehab and then refi with a bank before you move in, but the hard money lender is very cautious about doing that kind of loan. It’s not typical.

                                                                         What is a Mortgage Broker?

    Mortgage brokers are the banks or larger lending institutions people think of when they are ready to buy their personal house.

    What are the terms? Banks typically want 5% to 20% down. The loan is typically a 30-year fixed rate mortgage, but a variety of loan programs are available.

    If using a mortgage broker to refi a rental property, is there anything to know?  Mortgage brokers make the loans, but Fannie Mae and Freddie Mac (government agencies) make the rules and tweak them fairly often. Try to stay aware, in general, of the recent changes.

    What is a Local Bank?

    A local bank is a commercial lender. This is usually the best place to refinance a rental property after rehabbing and placing a tenant. The refi pays off the hard money loan.  


    What type of loan does a local bank offer? Typically, it will be a 15-, 20-, or 25-year ARM for a rental property. This is an adjustable rate mortgage where the interest rate changes periodically, usually in relation to Prime.

    Does it matter which local bank I use?

    Yes. Ask them straight up if they like to do the type of real estate loan you’re looking for. If not, walk out.  Don’t try to talk them into doing a type of loan for you that they normally don’t like to do. 


    What should I look for in a local bank?

    You’ll want to find a bank that understands what you’re doing and sees the value of lending to you. Look for a quality local bank that loves to work with real estate investors. It’s easy to build a relationship that way when you’re building a rental portfolio.


    Is it necessary to build a relationship with the local bank?

    If you plan to aggressively build up a large portfolio of rental properties, get to know the decision maker at the bank.  For just a couple of properties to get started, you can go through the lower level people.


    Is there any other advantage to doing the refi through a local bank?

    A commercial bank will lend to your LLC. A mortgage broker will lend to individuals and it will go on your credit report.

    It’s clear to see how the different lenders and types of loans are suited for different purposes in the real estate investment process. The loans you choose – and the timing of them – can make a great difference to your profitability and your ability to scale. It all starts with your favorite St. Louis hard money lender, FasterFunds Lending.