It of course goes without saying that the human and economic toll of the COVID-19 crisis has already been substantial. In a bid to stem the flow of virus transmission and protect human life, almost every state has instigated some form of lockdown. And since the first states introduced shelter-in-place orders in March, the US economy has been severely throttled.
The property investment industry, like virtually all other industries, is certainly feeling the impact of this. However, the market is still functioning and investors still have access to funding. But how you can access that funding, as well as the terms attached to it, have changed to reflect the new environment. So in this article, we’ll explain what investors need to be aware of and how you can get a hard money loan during COVID-19.
The Current State of Conventional Lending
Let’s first take a look at the traditional financing industry and how it’s responding to the coronavirus crisis.
Data from the month of April shows that mortgage financing availability was severely tightened, and reached its lowest level since December 2014. This tightening on conventional lending standards was largely driven by lenders removing products available to borrowers with low credit scores and with high LTV ratios.
And it isn’t just tightening around the edges of standard mortgage lending on new purchases that’s creating the credit squeeze. Cash-out refinancing has also tightened significantly since the start of the crisis.
However, one area of traditional lending that has so far bucked this trend of retrenchment is traditional mortgage refinancing. March saw the highest increase in mortgage refinancing since April 2009, as property owners take advantage of record-low lending rates thanks to the Fed’s recent emergency rate cut.
Non-Qualified Mortgage Loans
The non-QM lending industry has arguably been hit hardest by the COVID lockdown. A large number of wholesale lenders have suspended non-QM funding altogether. These include Citadel, Arc Home, Angel Oak, theLender and Nations Direct Mortgages, to name just a few.
As non-QM lending had gained popularity with real estate investors over recent years, we’re now seeing these investors enter the hard money markets even more aggressively, in order to continue financing projects.
Hard Money Lending During the Coronavirus
The good news for real estate investors is that the hard money lending industry is still providing financing. But not only that, it’s also increasingly being used as a fallback option for investors who usually use the above forms of financing.
Here at We Lend, we’ve made adjustments to our lending criteria in line with all other conventional and private hard money lenders. This is to ensure all involved parties’ risk levels reflect the new environment. However, we’re still considering all loan applications, so get in touch using our online application process if you have a project that needs financing.
Essentially, the message within the industry is that lenders need confidence that new borrowers can ride out an extended market downturn in a worst-case scenario. Here at We Lend, we’ve seen a shift in the type of borrower we’ve been closing loans with since the start of COVID-19.
Our loan book is now made up of a higher percentage of investors with previous real estate experience and high levels of liquidity, with a correspondingly lower percentage of first-time investors.
However, we’re still considering all loan applications, including from first-time investors, and are assessing all projects on their individual merits.
Lenders are focusing more on prime markets in urban and suburban locations. Already distressed property markets or rural locations are seeing lower approval rates throughout the lending industry.
Again, here at We Lend, we’re still considering all loan applications and will assess all projects on their individual merits.
In terms of the types of properties and projects we’ve closed deals on since the start of the coronavirus crisis, we’ve been lending to investors in a number of locations throughout the country, who have found themselves locked out of their usual source of borrowing.
In March and April, some of the property locations where we closed loans or have upcoming closings include:
- Mount Vernon, NY
- Long Island, NY
Of the hard money loans we closed in April with our clients, the average LTVs were around 80%, this is versus the start of the year when we were lending with LTVs up to 90%.
In addition to the adjustment to LTVs, maximum loan amounts have also decreased across the industry. Here at We Lend, we’re still lending up to $2,000,000 depending on the borrower and property credentials.
However, it’s useful to look at some specific hard money loan products to get a better picture of the hard money lending industry during COVID-19.
- Fix and Flip Loans: Expect to be able to find financing for 70-80% LTV projects if the property’s in a good location and you’re an experienced investor with a proven track record. 100% financing for the rehab portion of the loan is also still widely on offer. However, high LTVs may mean that some lenders require the borrower to set aside interest reserves in an escrow account, to ensure they can make all the payments. Here at We Lend, we’re still lending on fix and flips, and in April closed deals with LTVs up to 80%.
- Rehab Loans: The industry is still lending to a wide range of renovation projects within prime property markets. In April we financed 100% of our borrowers’ construction costs for renovations.
Hard Money Lending Outlook
We’re anticipating continued disruption to the lending supply chain within our industry. Homeworking and high levels of sick leave are slowing down operations such as underwriting, appraisals, and notaries. Therefore, borrowers should factor in longer than usual timeframes from loan application submission and processing to funds being made available for the foreseeable future.
The ability of the hard money industry to continue lending at current levels will depend largely on the ability of existing borrowers to repay. If this begins to slow, then we could see further retrenchment within the industry of who can qualify for a loan. Therefore, if you have a project that requires financing, you should start the application process as soon as possible.
However, it looks like our lives can begin to return to some form of normalcy over the coming months, as states begin to introduce lockdown exit strategies. As the impacts of this become apparent, we’ll continue to update our market outlook and advise accordingly.
Please get in touch with us if you need a hard money loan now or in the near future.
But most importantly, from all the team at We Lend, continue to stay safe and healthy.