There are vast differences between Hard Money loans and stated loans. The key players in the stated arena are Interbay Funding, Silver Hill, Lehman Brother small balance, and Wells Fargo small balance.
Unfortunately when borrowers/brokers compare products their sole focus is on rate. In the commercial arena, the APR is not widely utilized so borrowers/brokers must figure out the total cost of each loan. There are many differences amongst Interbay Funding, Silver Hill, Lehman Brother small balance, and Wells Fargo small balance. Below is a table that compares a typical program offered by one of the players in stated small balance commercial lending.
|Fairview Lending Hard Money||Stated program|
|MAI Appraisal||None required; nominal inspection fee||Required; costs typically $3-5k upfront and takes 4-6 weeks|
|Closing time||2-3 weeks||6+ weeks|
|Credit Score||All scores accepted||Mid score 650+|
|Prepayment Penalty||Negotiable||60 month interest guarantee; 5%+ thereafter, essentially it is not economical for the borrower to pay the loan off in the first 5 years|
|Term||Negotiable||Typically 5, 7, 10|
|Personal Financials||Not Required||Sometimes Required|
Based on the table below, let’s say borrower A wanted to take out a loan, his credit was 650 but he couldn’t totally prove his income. He wanted to do a loan for $500,000. If he paid off with a stated lender in year three after his credit improved, he would have to pay 3 years worth of interest. In this case assume a 10% rate; three years of interest would be ~$150,000.
Continuing with the example, even if the hard money lender’s rate was 5% higher than the stated lender, and there was a 2% exit fee, the borrower would save $65,000 when the loan was paid off. The borrower could then refinance into a full documentation loan with a rate at least 3% lower than the stated program.
For a borrower who feels that they can refinance in less than 5 years (most borrowers realistically can improve there credit in ~ 18 months or less) then a hard money programs is a much better financial decision. Individuals should not solely look at the rate for a hard money loan versus a stated loan. It is imperative to look at the total picture amongst the two products. Fairview Lending’s hard money commercial programs are many times a much better option than most traditional stated programs. Call Fairview Lending today to discuss your loan and see for yourself why the hard money option is likely cheaper for you or your client.