Why Brokers Should Consider Hard Money Loans for New Construction Projects

Hard money loans are short-term, asset-based loans provided by private lenders or investor groups rather than traditional banks. Unlike conventional loans that rely heavily on a borrower’s credit score and financial history, hard money loans use the property’s value as collateral. New construction hard money lenders have a streamlined loan approval process so they can provide funding within days rather than months, serving construction projects that require fast financial support.

This article examines the rising popularity of new construction hard money loans while demonstrating how intermediaries can successfully market these solutions to their clients.

Key Reasons Hard Money Loans Are Popular for New Construction

The popularity of hard money loans for new construction is rooted in several unique benefits:

Speed and Flexibility of Funding

Traditional banks often have lengthy approval processes that include extensive documentation, credit checks, and underwriting. Construction projects which face these difficulties cause progress to stall at critical stages. Hard money lenders base their decisions on project value, and offer the potential to deliver quick approval and disbursement of funds.

• Fast Approvals: Hard money loans can be approved in days, not weeks or months.
• Flexible Terms: The loan conditions adapt according to construction project requirements.

In a competitive market, this speed and flexibility allow developers to secure properties and start building before the competition, ensuring that they stay ahead.

Financing for Unique and High-Risk Projects

The traditional banking sector avoids funding projects that contain non-standard features or pose substantial risks through elements like distinctive designs, construction site complications, or unproven materials. Hard money lenders demonstrate a greater willingness to fund non-standard construction projects. The evaluation process focuses on property value and profitability potential, allowing them to bypass traditional standardized risk assessment methods.

Through their willingness to fund unconventional projects, hard money lenders enable developers to pursue innovative real estate developments in emerging districts that regular lenders avoid.

Focus on Property Value, Not Credit History

The path to bank loan approval becomes difficult for both new developers and investors who experience shifts in their credit scores. The primary focus of hard money lenders rests on property value which overshadows the importance of borrower credit scores when evaluating financing approval. This makes hard money loans an attractive choice for:

• Developers with limited credit history
• Borrowers financing high-value properties
• Clients needing quick, no-hassle financing

Through this distinctive approach, wholesale partners gain the ability to create personalized solutions for clients who seek quick and efficient lending options beyond standard channels.

Short-Term Loan Structure Matches Construction Timelines

New construction projects need short-term funding, until the construction reaches completion or until the property sells or refinancing occurs. The duration of hard money loans matches construction timelines by providing financing between 6 and 24 months so borrowers can use them effectively during this period. After project completion and property value determination, the borrower can repay their hard money loan through property sale or by obtaining a traditional mortgage.

The flexible loan conditions allow developers to work with brokers and wholesale partners who help them exit projects profitably after development completion.

Potential for Higher Loan-to-Value (LTV) Ratios

Hard money lenders typically offer financing terms that provide borrowers with superior loan-to-value ratios than traditional lenders, enabling them to obtain larger construction cost funding. This is particularly helpful for developers who may not have substantial upfront capital but have identified a high-potential project.

These new terms give wholesale partners and third-party originators the ability to work with developers who seek maximum leverage and enhanced investment returns.

Additional Benefits for Brokers and Wholesale Partners

Now, let’s talk about why promoting hard money loans for new construction benefits you as a third-party originator or wholesale partner:

• Increased Deal Volume: Your deal volume grows because hard money loans enable you to work with a wider range of developers and investors.
• Faster Closures: The expedited approval process results in faster deal closings which can be a massive benefit to borrowers.
• Stronger Client Relationships: Your flexible and customized solutions help you create strong client trust which leads to enduring business relationships.

Your clients can reach their goals through financing provided by hard money lenders like RCN Capital, helping establish you as an essential role in their achievements.

Challenges to Consider with Hard Money Loans

While hard money loans offer undeniable advantages, they do come with specific considerations: 

• Higher Interest Rates: Hard money loans generally have higher interest rates when compared to traditional loans due to the increased risk for the lender. Developers accept reasonable interest rates because they depend on their investment returns being significant.
• Short Repayment Period: Borrowers need to create exit strategies before the loan term ends, because the short loan period demands that borrowers sell or refinance when their projects finish.

Your role as a wholesale financing partner becomes essential when you help your clients navigate loan challenges to prepare them utilizing these loans effectively.

Future Outlook: Hard Money Loans for Brokers and Wholesale Partners

Hard money loans for new construction projects will experience growing demand because developers require fast and adaptable financing solutions. The speed and flexibility of hard money lending combined with project-specific funding creates distinct opportunities for brokers and private lenders to serve clients in competitive markets.

The demand for quick-turnaround on projects combined with urban housing shortages will make hard money loans a more standard financing practice. New construction hard money lenders enable brokers to function as essential market participants who assist clients in seizing opportune moments.

RCN Capital: Your Partner in Hard Money Lending

If you operate as a broker, wholesale partner, or affiliate you should consider expanding your lending solutions. RCN Capital provides customized hard money loans through nationwide partnerships with residential mortgage brokers, commercial mortgage brokers, smaller private lenders, and referral partners.

We provide short-term fix & flip financing, long-term rental financing, and hard money loans for new construction. If you’re looking to provide your clients with flexible, fast, and reliable financing options, connect with RCN Capital today. Together, we can help you grow your business and deliver exceptional value to your clients.