How Soft Money Loans are the Future of Lending

‘Soft Money’ is a relatively new term in the lending industry; an innovative approach to money lending, a soft money loan combines the benefits of a hard money loan with the greater security that a traditional loan offers. While a soft money loan requires more underwriting, it also offers lower risks and less risk, making it a deeply attractive option to borrowers who find the concept but not the details of a hard money loan appealing.

Hard Money Loans

As you know, a hard money loan is an asset-based loan, based on the Loan to Value (LTV) of the investment property. They require little underwriting, making them a quick loan for borrowers to get approved, are generally bridge loans, and are not based on a borrower’s credit score. This makes them a high-risk loan that is used for real estate investment. The high-risk nature of this type of loan as well as reservations from the 2008 housing market crash, may make some borrowers reluctant to pursue this type of loan. This type of loan also does not increase a borrower’s credit rating, which may also decrease their appeal to borrowers with good credit.

What is Soft Money?

Soft Money is an innovative new approach to money lending which combines the benefits of both hard money loans and more traditional loans. First, a clarification on the name: the term ‘soft money’ in the world of lending is completely different from ‘soft money’ in the world of political campaigning. In the context of lending, the term ‘soft money’ implies that this type of loan falls somewhere between a hard money loan and a traditional loan.

A soft money loan requires more underwriting than a hard money loan, allowing it to have lower rates and greater security. It is based on both the borrower’s credit score and the property’s LTV, and is usually a term loan rather than a bridge loan. A borrower can also build or repair their credit with a soft money loan, making it appealing to those with good credit or those looking to rebuild their credit. The combination of lower rates, credit building, and a longer time frame makes the soft money loan a better fit than a hard money loan for many borrower’s situations, particularly those interested in investing in a home or a more long-term property.

Why is Soft Money the Future of Lending?

Calling soft money ‘the new hard money’ may seem trite and contrived, but upon further reflection, soft money truly is the direction for the future of lending. An innovative approach combining the benefits of hard money loans with lower risk, higher rates, and a term loan time-frame, soft money loans fit many borrowers far better than the higher risk, lower rates, and bridge loan time-frame of the hard money loan. While the hard money loan is still the best option for many real estate investment scenarios, the soft money loan will increasingly become the loan used by first-time homebuyers, borrower’s looking to build their credit score, and investors with a good credit history who are looking for higher risk and lower rates.

When you’re ready to invest, Stratton Equities can help. We are the nationwide leading direct Hard Money and NON-QM lender, with an impressive array of programs, lowest private money rates (starting at 4.375%), professional team of experienced loan officers, and quick loan approval process.

If you have an investment property and wish to speak with one of our Loan Officers, call Stratton Equities at 800-962-6613, email us, or apply for loan pre-qualification today!