The type of funding you choose is very important when you are looking at financing a land rezone project. The two types of typical financing are hard money loan and conventional mortgages. Although both of them can assist you in raising the capital required in the process of rezoning, they have different forms, conditions, and applicability.
In this guide, we will deconstruct the disparity of the debate of hard money loan vs mortgage so that you are able to determine the option that suits your project objectives.
Understanding the Basics: Hard Money Loan vs Mortgage
Before proceeding any further, we need to define each alternative:
- Hard Money Loan: A temporary loaning that is given by personal lenders which is backed by the property itself. It does more to do with the worth of the property rather than the credit record of the borrower.
- Mortgage: It is a long-term loan provided by the bank or credit union, which majorly depends on the credit worthiness, income, and the ability to repay the loan.
Comparing hard money loan vs mortgage, it is necessary to note that both are intended to serve completely different purposes in real estate financing.
Speed of Funding: Why It Matters in Rezoning?
Rezoning is known to have very strict deadlines particularly when it comes to competing with other buyers over prime land.
- Hard Money Loan Advantage: Loans can be received and paid within days or weeks, and this is why it is a good option when a developer requires immediate and high-quality access to money.
- Mortgage Disadvantage: The conventional mortgages normally require 30-60 days to process which involves a lot of paper work and underwriting.
The hard money loan vs mortgage comparison favours the hard money loans to those developers who require speed.
Approval Requirements: Credit vs Collateral
The other difference that is critical is the way lenders evaluate risk.
- Hard Money Loan: It is granted mainly according to the value and potential of the property. Lenders do not focus much on the credit rating or finance history of the borrower.
- Mortgage: Banks require good credit, written earnings, taxes and even reserves. Debtors having low credit scores might not be able to make it.
In hard money loan vs mortgage choice, developers whose credit is not perfect tend to use hard money loans.
Loan Terms and Repayment Structures
There is a big difference in the financial structure of such loans.
- Hard Money Loan: Typically short-term (6 months to 3 years), and typically charged a higher interest rate, such as 8-15%. It aims at financing the project until it is completed or refinanced.
- Mortgage: Long-term loans (15-30 years) of lower interest rates usually 5- 8%. They are perfect in terms of stability and predictable schedules of repayment.
Regarding the issue of hard money loan vs mortgage, the decision will depend on whether the project you need is short-term oriented or long-term affordable.
Flexibility in Use of Funds
The rezoning projects are usually associated with specific costs like the surveys, permits, legal fees, and construction planning.
- Hard Money Loan: It is more flexible. Banks may be hesitant to fund unconventional projects which are welcome by the direct private lenders.
- Mortgage: This is usually limited to residential or commercial properties which have been valued. Land rezoning is an area of the bank business that many banks are reluctant to finance due to the risks involved.
In the case of developers dealing with niche rezoning projects, hard money loan vs mortgage decisions tend to favor hard money lenders.
Risk Considerations
Both loans are risky, but they are different.
- Hard Money Loan Risks: With the increased interest rates and the short repayment windows, failure to rezone or refinance within the short time frame may result in a foreclosure.
- Mortgage Risks: Rates are cheaper, but unless strict eligibility checks are done, or there is a delay in approval, projects may be put under threat.
Before committing, it is important to know the risk balance of the hard money loan vs mortgage debate.
Which Is Best for Rezoning Projects?
In considerations of hard money loan vs. mortgage to rezone, it all depends on the case:
Choose Hard Money Loan if:
- Access to capital is required quickly.
- The project you are working on is out of the box.
- You do not fit the bank requirements.
Choose Mortgage if:
- Your project can be considered as bank lending.
- You have long-term, less expensive financing.
- You are allowed to wait for the approval process.
The developers are often using hard money loans to get the property and initiate rezoning and refinance into a conventional mortgage after some time to stabilize.
Why Work With LoanLocker?
At LoanLocker, we are aware of the special difficulties, which developers experience when it comes to financing land rezoning projects. No matter what you are considering a hard money loan vs mortgage, our team will assist you to compare, find reputable lending institutions, and design the funding that aligns with your objective.
LoanLocker simplifies the process of financing by its industry experience, access to a wide range of lending networks and streamlined strategy.
Conclusion: Making the Right Financing Choice
The question of hard money loan vs mortgage can be boiled down to the requirements of the project, project time frame, and the qualification of the borrower.
Hard money loans are fast, flexible and mortgages are cheap and stable. In the case of land rezoning developments, a large number of developers combine both approaches, starting with hard money to get going, then financing with a mortgage.
LoanLocker can provide the right financing to your rezoning project. Visit today and find your solutions at https://loanlocker.com/ and get financing that keeps your project on track.