Most people are unaware of just how many types of home loans there are until the need for financing arises. If you are like “most people,” you may quickly become overwhelmed with the number of financing options available to you. While you should definitely do your homework, you can narrow down your options by reviewing the best unconventional home loans of 2020 and understanding when you may want to use each.
Why Use a Non-Conventional Loan
Most buyers are familiar with conventional loans, which are loans that banks and other financial institutions originate. Conventional loans come with strict eligibility requirements that many aspiring homeowners struggle to meet. Conventional loans are also available for limited property types and in limited amounts, which can pose a challenge for those interested in non-conventional properties or high-value properties.
Non-conventional loans, on the other hand, offer ample flexibility with regard to loan amounts, the type and number of properties, and eligibility requirements. They also have looser down payment requirements and less-stringent credit rules. That said, the benefits of going the unconventional route really depend on the type of loan in question. From private money loans to hard money loans, you have several options. Below is a brief overview of each.
Hard Money Loans
A hard money loan is an innovative lending solution used most often by investors and developers who plan to buy a home, fix it up and sell it in a short period of time. Hard money loans are backed by the property itself and, as such, require little to no monetary investment on the borrower’s part. Moreover, a hard money lender Los Angeles is more interested in the potential value of a property rather than the creditworthiness of the borrower, so credit score is rarely a deciding factor.
Hard money loans are short-term financing solutions meant only to help a borrower acquire a property. Because of the unconventional nature of this solution, traditional lenders are often hesitant to issue them. To find hard money loans San Diego, you will want to work with a private investor.
Private Money Loans
A private money loan is exactly what it sounds like — a loan from a private person or organization. Because the government cannot regulate private money loans, the terms for these types of loans can vary widely, as can the eligibility requirements. However, once you sign a contract with a private lender, said contract is legally binding, so you want to be sure to read the terms and conditions carefully before agreeing to anything.
Owner Occupied Hard Money Loans
Owner occupied hard money loans typically come with short terms of between three to four years. Unlike a traditional hard money loan, this type of loan is designed for individuals who want to buy but are not yet in a place to do so. Before a lender issues this type of loan, it will want to see that the borrower has a sensible plan in place to qualify for long-term financing, such as repairing his or her credit or building up a sizeable down payment. Lenders may also ask for verification of income and that the borrower keeps his or her debt-to-income ratio low for the life of the loan. You can visit this site to know about credit reporting services for lenders.
Unconventional loans are easier to obtain the conventional loans and come with many benefits. Talk to a hard money lender Los Angeles to learn more about the best unconventional loan types of 2021.