Hard Money Lending for House Flipping in this COVID-19 Economy

hard money lending

The COVID-19 pandemic has brought financial hardship to millions of American households and businesses. With the prevalence of lockdown laws and social distancing strategies that are intended to prevent the spread of the coronavirus, some industries have been decimated, while others have flourished. Airlines and hospitality sectors, for instance, are struggling, while online retail and delivery services that support a stay-at-home economy are thriving. Amidst the uncertainty about what the future holds, in many markets around the country home buying remains as strong as ever, and hard money lending continues to serve as a reliable source of capital for house flippers.

Hard Money Lending Helps House Flippers Provide Like-New Homes

These are definitely tough times, but families still have to function and they rely on businesses for the necessities of life. Among the businesses that continue to serve American consumers in these tough times are house flipping investors—who bring like-new housing options to the market for home buyers. And, while fix and flip real estate investors are still busy finding and fixing distressed properties, hard money lending remains an important source of capital to provide the short term financing options they can rely on to get their projects completed quickly.

Yes, there are hard money lenders who have scaled back operations or shut down their loan programs completely to wait out the pandemic, but many private lenders remain active and are there to support the business goals of fix and flip investors. As an industry, hard money lenders face the same challenges of maintaining business operations with the new work-from-home model that other sectors are dealing with. Those lenders that have remained competitive in this Covid-19 environment have challenged themselves to streamline to the degree possible all aspects of the loan application and approval processes to ensure that construction projects start and end on time.

When the COVID-19 pandemic hit in the first quarter of this year, Anchor Loans’ CEO reached out to its borrowers with assurances that:

“While there is uncertainty in the marketplace, let’s take control of what we own and make the outcome certain. The American Dream of homeownership is resilient. Within our market, Anchor Loans provides real estate financing for investors, contractors, and developers. We do our part to make the American Dream a reality.

Anchor Loans’ promise is to “work harder, be more resourceful, think smarter, and execute efficiently. We will weather these tough times, and we often learn the most from overcoming difficulties. Given the current environment, we are finding new terminology in our conversations – social distancing, business continuity, pandemic, contact tracing, and COVID-19. All of these words can be distracting and unsettling however, we remain focused on creating value for our clients and delivering on our promise of commitment, integrity, trust, and responsibility.”

Hard Money Lenders Remain Fast and Flexible

Whether a fix and flip borrower requires fast closing, cash closing, or flexible loan terms on a rehab or new construction loan, hard money lending remains a viable solution and a fast funding alternative to the 45 to 60 days a conventional bank will take to close a home loan—and since hard money loans are asset-based loans, a borrower’s credit history will not be the primary focus for loan approval.

Unlike conventional banks that are constrained by reams of red tape and federal regulations, hard money lenders can remain flexible and can adjust operations to satisfy changing market demands and unique economic circumstances.

Expect a Few Changes to Hard Money Lending

It is important to note that for those in the hard money lending industry that are continuing to provide house flippers with capital for their projects, most have had to make adjustments to their loan products and programs to ensure equity coverage and mitigate risk amid economic uncertainty in the market.

Fix and flip borrowers should expect some of the following changes to the hard money lending landscape:

  • Loan costs (interest, points and fees may be impacted)
  • Loan-to-value (LTV thresholds may be adjusted)
  • Property types and location may be excluded (commercial, rural, etc.)
  • Cash reserve minimums (cash on hand requirements may rise)

At Anchor Loans, providing an exceptional customer experience remains our number one priority. Over 85% of our current borrowers are repeat customers who have partnered with us on multiple deals. This makes us extremely proud, and the fact that our customers return again and again to work with us lets us know that our focus on providing an exceptional customer experience is the right focus.

Despite the impact of Covid-19 on some in the hard money lending sector, Anchor's lending capacity is as healthy as ever and we do not anticipate any interruption in our lending programs in the foreseeable future.

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