Are you wondering what the heck an “alternative” loan is? Well, you are not alone. This new type of funding for real estate is all the rage in investor circles!
“That’s awesome!” you say. “Now, can you pleeeeeeease tell us what it is? I need a real estate investment loan, and quick!”
You bet – let’s go!
You already know you can go to the bank for real estate funding, and you likely already heard something about hard money real estate funding. Well, an alternative lender for real estate funding sits smack in between the two of them.
Alternative loans are generally able to close funds for real estate faster than the bank and are cheaper than hard money.
To help explain further, we brought in the Merriam-Webster Dictionary for a little help:
Definition: alternative (adjective)
1: offering or expressing a choice
2: not usual or traditional
3: existing or functioning outside of the established society
There you have it! We could not have said it better ourselves.
Alternative lenders offer a choice beyond traditional lending, they are non-traditional in their speed to close, rates, leverage, and underwriting, and they exist outside of the traditional banking world.
Let’s take a look at what this means for your next real estate funding loan.
Speed to close:
Bank loans: 6 to 8 weeks (and up to 2 months)
Alternative Loans: 7 to 14 days
Hard money: 24 hours to a week
Bank loans: 3.75% to 6.5%
Alternative Loans: 4% to 10%
Hard money: 10% to 15%
Leverage: (The lower the leverage, the more cash you will put into the deal)
Bank loans: Low
Alternative Loans: High
Hard money: Medium to High
Bank loans: Tax returns, credit and background checks, appraisal, personal financial statements, bank account info and … the kitchen sink.
Alternative Loans: Real estate experience, property details, purchase price, rehab budget, after repair value (ARV), and borrower liquidity (not tax returns), appraisal*.
Hard money: Minimal (the loan is based on the asset)
*Sidenote on appraisals: we use local appraisers rather than appraisers from large, national appraisal firms, which can be inaccurate, and slow down the appraisal process.
Great news! We have a handy resource to help you decide
which lender is right for your project.
It’s a breeze to download it right here — and it’s Free!
LENDER COMPARISON: RATES AND TERMS
BANK VS ALTERNATIVE VS PRIVATE VS HARD MONEY
An alternative real estate funding loan makes sense for you if:
- You need a quicker close than the bank can provide, but you don’t need to close sooner than a week.
- You have good credit (640 or above) and some liquidity (cash on hand), but you don’t want to use it all to put down the 25% to 30% that the bank may require on a real estate investment loan.
- You don’t need a no-doc real estate investment loan, but you also don’t want to spend weeks going through the typical bank’s underwriting procedures.
- You need a real estate investment lender that can work creatively and flexibly on developing a custom loan product for your specific project.
- You are looking for an investment lender whose principals have substantial investment experience, who is highly knowledgeable in the investing space, and who can help you take your deal from offer to close.
- You need a reliable lender who has a varied enough foundation of real estate funding sources that they are still able to lend when traditional lenders stop lending.
There are all types of funding for real estate investors out there, and most investors with a long-term real estate investing gameplan will probably use them all at one time or another.
Being aware of all your real estate funding options is a smart move, will make you a better investor, and will save you time and money overall.
Get out there and hit it hard Investor Nation!
The iFC Team
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i Fund Cities is an “alternative” lending platform offering custom real estate funding options for every level of investor, across a full range of lending products. As investors ourselves, we are just like you: hustle and grit, not suit and tie.
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