Soft money lending is a relatively new long-term loan program that’s quickly gaining favor in real estate investment circles with developers looking to purchase new properties. Soft money loans have many of the same upsides as hard money lending. They differ in that they rely on the borrower’s creditworthiness, as well as their liquid assets and investment record, rather than the property value. Soft money loans are perfect for real estate investors needing significant long-term funds.
The documentation and application process requirements are more stringent than hard money loans but still less stringent than traditional mortgages. Soft money loans are secure, fast, and affordable private money loans that benefit lenders and borrowers alike. They can fund many projects, such as equity growth, rehab, reconstruction, and tenancy, for many different property types, such as multifamily, single-family, mixed-use, commercial, retail, or office. If you’re looking for a soft money loan to invest or borrow in the Boca Raton area, read on to find out how Titan Funding can help you.
How do private lenders use soft money loans?
Private lenders use soft money loans as a funding alternative that sits somewhere between a conventional mortgage and a hard money loan. They’re a mechanism for private lenders to help real estate investors and self-employed borrowers who need a more structured funding process. It’s a financing pathway that’s more flexible than traditional mortgages and requires no income verification.
The approval process for a soft money loan is faster than for a mortgage but requires more documentation than hard money loans, including a credit report. Lenders analyze the creditworthiness of potential borrowers for soft money loans for the same reasons as any other loan: to ensure borrowers have the means and the history of paying off debts and that their creditworthiness is in line with their investment plans. Each lender varies, but as a general rule, they look for credit scores of at least 650.
Private money lenders are not banks, so ensuring the borrower is reliable is of the utmost concern — hence the need for more documentation. This additional information allows the lender to provide the funding within a much shorter time frame.
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Who should use a soft money loan?
Anyone interested in real estate investing can utilize soft money loans, which are very popular with brand-new investors because of the structure they provide. If you’re a beginner investor, you may still be determining how you plan to spend or grow your money through your investment. Interest rates are usually favorable for a first-time prospective investor, starting as low as 4.375%. The loan-to-value (LTV) rate, is generally advantageous for first-time investors as well. It’s often as high as 85%.
The key is to have a well-thought-out and reasonable plan, which will help your approval odds. Another benefit of a soft money loan for newcomers to real estate investing is that it provides more time to gain a footing than a hard money loan does. If you have more cash on hand and drop the LTV to 70% or less, you can get longer terms or lower rates, depending on your lender.
What are benefits of a soft money loan?
In summary, there are many good reasons to utilize a soft money loan for real estate investment funding, especially if you’re new to the game. Among the biggest reason are lower costs, longer terms, and lower interest rates. These advantages make real estate investing much more accessible to a broader range of investors. Working with a quality soft money lender, such as Titan Funding, can allow even a novice real estate investor to build equity and a real estate investment portfolio right from the get-go.
How can I get a soft money loan?
Now that we’ve discussed the many good reasons to seek a soft money loan for real estate investing let’s discuss how to get one.
Find a Reliable and Reputable Lender That Offers Soft Money Loans
Finding a reliable and reputable lender is as easy as choosing Titan Funding. Most lenders don’t offer soft money loan packages as they’re still relatively new, and few have entered the market. When looking for a soft money lender, make sure they’re reputable and have experience in soft money lending, as we do.
If you need to be in an optimal place financially and the bank has already turned down your application, you may be tempted to go with the first soft money lender willing to work with you. This could be a mistake if they need more resources and experience to manage your loan correctly, and it could cost you money.
Apply for Soft Money Financing
Once you have a reputable and experienced lender, such as Titan Funding, the next step is applying for the loan. Each lender will be different, and each transaction will vary depending on the situation, but, in general, you’ll need the following information:
- Property type: single-family, commercial, multifamily, mixed-use, etc.
- Purchase price.
- Anticipated closing date.
- Purpose of the loan: purchase, renovation, remodel, etc.
The terms of a soft money loan are similar to that of a conventional mortgage loan in that it’s long-term but usually closes much faster than a traditional mortgage, in as little as two to three weeks. The underwriting requirements for a soft money loan are more significant than a hard money loan, which can take a little extra time but leads to greater security and lower interest rates. Another difference is that hard money loans are bridge loans, while a soft money loan is intended to replace a conventional mortgage.
Receive the Funds
Once you’ve filled out the requisite paperwork, completed the underwriting process, and everything has been approved, all that’s left is the disbursement of funds. As long as you have a well-priced property, can prove your creditworthiness, and have a solid investment plan, getting a soft money loan is pretty straightforward.
When you’re ready to get started, reach out to the team at Titan Funding in Boca Raton, Florida. Our experts can review the soft money loan options available, answer any questions, and guide you through the process. You can contact us at 855-928-0737 or fill out the secure online contact us form to get started.
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