Soft money lending is a new form of borrowing that exists somewhere in between hard money lending and a traditional mortgage. As a new type of lending program, it is perfect for first time investors in the real estate market.
A soft money loan program is defined as a long-term (5/1 ARM, 7/1 ARM, 30 Year Fixed) real estate investment loan program that closes faster (2-3 weeks) than a conventional loan.
In relation to hard money lending, one of the major differences of soft money loans is that it requires more underwriting, allowing it to have lower rates and greater security. It is based on both the borrower’s credit score and the property’s Loan-to-Value (LTV), and is usually a term loan rather than a bridge loan.
As a new type of lending program, soft money loans are perfect for first-time or seasoned investors who are looking for options that offer long-term financing. It can apply to commercial, multi-family, or investment properties as long as the lending strategy reflects the need for long-term financing.
Depending on the lender, a prospective borrower can get a loan with an interest rate that is as low as 4.375% and have an LTV of up to 85%, as opposed to the 70% with conventional financing, with no PMI. These types of benefits make it easier for investors as it lowers the barrier-to-entry a little bit more.
Some of the benefits of soft money lending include lower rates, higher LTVs, and longer lending terms. Depending on your lender, you can get financing for up to 5/1 ARM, 7/1 ARM, or 30 Year Fixed. This is a more lenient format than that of hard money lending, which typically consists of short-term financing bridge loans with higher rates, lower LTV’s, and higher costs.
Furthermore, soft money loans do require more underwriting so the application process is not as simple as with hard money lending. Given that soft money loans offer more money at lower rates and longer financing terms, one of the main extra criteria for soft money loan applications is that you need to have a good credit score (at least 650).
Due to the exclusivity of this type of loan program, many lenders do not offer this type of loan product.
When looking for a soft money loan for your real estate investment property, it’s important to find a reputable nationwide private money lender that specializes in soft money loans.
About the Author
Michael Mikhail is the CEO of Stratton Equities, one of the nation’s leaders in private lending. He has 20 years of experience in the real estate industry and operates his business in New Jersey.
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