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Pro’s and Con’s of Hard Money Loans
Hard money loans are one of the many ways to secure money. With this loan method, mortgage lenders are not needed. With hard money loans, investors or individuals lend the money while your home is used as collateral. Hard money loans are the best bet if you need quick cash and cannot secure a loan from another source.
While most loans require some type of proof that they can be repaid, this isn’t the case with hard money loans. Traditional lenders require a descent credit score, and sometimes they can still be painfully slow even when you’re approved.
Hard money loans are based on the secured collateral. In the case where you cannot pay back your loan, the lender will simply take your collateral and sell it. The loans have a quick approval rate, and terms can be from one to five years.
There are many pros and cons of hard money loans. Some of the pros:
Speed: Because the loans only need collateral, hard money loans are often closed a lot quicker than traditional loans. Because income verification and credit history isn’t necessary, the process tends to move a lot faster. In many cases, you could be approved within 24-48 hours due to the lack of paperwork needed for the process.
Flexibility: The agreements are more flexible because there is no standard underwriting process. Each deal is evaluated on an individual basis. Depending on the situation, certain terms can be tweaked to the benefit of the loan recipient. The ability to negotiate and renegotiate if needed makes it easier to fit your needs. Remember, with hard money loans, you aren’t dealing with strict lenders with stringent terms.
Approval: The most important part of the hard money loan process is having collateral. Above all, the lender cares about the value of your collateral. Your credit score is far less important. With hard money lending, loan to value ratio can be 50% to 70%. So your collateral has to be significant in order for the lender to have a good shot of recouping their money if the loan is defaulted.
Hard money loans make a great deal of sense if you own a business that flips and fixes houses. In this case, you can take out a short-term loan and once the property is sold within a year, the lender can be paid off.
These are the drawbacks of hard money loans:
High Interest: One of the biggest cons of hard money loans is the interest, which may be considerably higher than regular loans. In some cases, the interest can be double-digit. High interest is due to the focus being on the property rather than the lender. The high interest could also be overwhelming. It is imperative to calculate your finances in the long run to determine whether or not you will have the money to cover the loan.
Short Term Only: Hard money loans are generally available from six months to 5 years. The loans are private and they are generally used only for building renovations or property flips. The loan borrower should also be aware that the lender may want the entire balance of the loan paid in full within the one to five year range. But if you have a piece of property you are trying to get ready to sell, the hard money loan will allow time for the property value to boost. This way, the loan can be paid back while earning a profit.
If you are in need of a hard money loan, consider the pros and cons. Remember, it’s only a temporary loan that should be used for specific needs.
If you’re looking to rehabilitate and sell properties or have another need for a hard money loan, our company is here to help. We provide fast funding times and flexible options to help increase your bottom line. Even if you’ve had difficulty obtaining real estate financing elsewhere, we’ll most likely be able to help. We have experience in all types of lending scenarios and many loan programs.
What is a Hard Money Loan and How Does it Help Real Estate Professionals?
A hard money loan provides investors with a fast way to obtain property, improve it, and sell it for a profit. Even if you have limited or no money for a down payment, we have bridge loans that will help you get the property you need, when you need it. Hard money loans are temporary loans that are suitable for investors who don’t wish to retain the property. Therefore, the loans aren’t practical for a primary occupant or someone who wishes to retain the property over the life of the loan.
Due to the temporary nature of hard money loans, the investor should have a clear vision of how they wish to improve the property and have a solid exit plan. Since these loans are made on a convenience basis, the interest rates are typically greater than a conventional mortgage with a different repayment structure. Interest-only payments, adjustable rates, and balloon payment loans are common loan types. To avoid the pitfalls of these types of temporary loans, the property should be listed for sale immediately upon completion and the loan repaid at settlement. Typically, hard money loans are satisfied within the same year that they’re originated.
Hard money loans focus more on the collateral and its ability to produce a profit rather than the borrower’s financial history. This means that credit blemishes and limited assets aren’t necessarily deterrents as they would be with a conventional loan. You’ll be able to take advantage of more opportunities feeling confident that you have us on your side.
What Information Do I Need to Apply for a Hard Money Loan?
When you apply for a hard money loan, you should have a property selected. It’s helpful to gather as much documentation about the property as possible. This could include appraisals, home inspection reports, tax bills and liens, and anything else that relates to the property’s history. Our company will order an updated appraisal and other necessary documents to proceed with the transaction. Although personal information isn’t heavily weighted in the underwriting process, it’s a good idea to ensure that your information is accurate, complete, and presentable. Any major financial events that are derogatory should have a reasonable explanation prepared in writing.
You should also be able to provide estimates of the work to be completed as well as a timeline. The after-repair value of the home should reflect real-world data and be a realistic amount.
How Do I Apply for a Hard Money Loan?
Applying for a hard money loan is fast and simple. Our online application asks for simple information that will help us get an idea of what you’re requesting. You’re also able to contact us by telephone if you’d prefer. Our loan representative will review the information and contact you with the next steps to continue with the loan. They’ll also advise you of the documents that’ll be required and the loan details. If a hard money loan isn’t appropriate for your situation, they’ll provide alternatives if possible. After this point, you’ll be scheduled for settlement and receive the funds to complete your project. It’s really that easy! You’ll quickly understand why so many real estate investors trust us as their go-to lender. Get in touch with us and see exactly what we can do for you, today!