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Bellevue-Washington Hard Money Loans
A hard money loan is an alternative to a traditional mortgage loan. It’s a tool that’s often used by real estate investors and developers who appreciate that hard money loans are fast and easy. While it would be great if there wasn’t a need for hard money loans because traditional bank loans met the needs of all real estate investors, that’s not the world in which we live – nor is it realistic. Keep reading to learn more about hard money loans. You can gain insights to determine if this loan product is right for you.
About Hard Money Loans
Hard money loans are for real estate investing and they primarily consider the value of your property as collateral. This is unlike traditional loan products that make decisions based on your ability to repay the loan, which means assessing your credit and income. Not that your financial standing is insignificant to hard money lenders, it’s just not the determining factor in most cases. There are different types of hard money loans, such as the construction loan, bridge loan, fix-and-flip loan and owner-occupied loan.
You can use a bridge loan to buy a property now, then resell or refinance it. You can also use a bridge loan to buy a new property before you get a cash down payment from selling a property that you already own. The fix-and-flip loan enables you to purchase and then fix up a property to resell right away, then pay the loan off. Construction loans enable real estate developers to start a new construction project and then either refinance or sell it. There’s also the less common owner-occupied loan for consumers who cannot qualify for other lending options. In order to avoid having to comply with numerous regulations, hard money lenders tend to avoid owner-occupied consumer loans.
How Hard Money Loans Work
Perhaps one of the main reasons why real estate investors appreciate hard money loans is because the application process is easy and financing doesn’t take a long time. In fact, it can take less than a week to complete the process. Although the criteria varies form one lender to the next, you will likely need a down payment that’s determined based on the property’s Loan-To-Value (LTV) ratio or After-Repair-Value (ARV) ratio.
The loan period for hard money loans is 12 months to a few years. Instead of principal and interest, the monthly payments made for these loans is often interest only. There’s even a possibility that you will not have to make any payments until the loan matures, at which point you will need to make a balloon payment. That final payment will include the entire loan principal, all of the remaining interest and any fees.
Is a Hard Money Loan Right for You?
If you are able to quality for a traditional bank loan and you have time for the lengthy process, then that might be the best option for you. However, if you are unable to qualify for another type of loan, then a hard money loan is worthy of consideration. Some of the concerns that people have about hard money loans include the high interest rates, short terms, high fees and lack of government oversight. There’s also the possible issue with refinancing due to traditional lending guidelines. These are all valid points that must be assessed.
Many real estate investors and developers understand the issues associated with hard money loans and still choose them because of the advantages. Having access to quick money, the relaxed requirements and the flexible terms are all reasons why a hard money loan works for so many people. If you are in a seller’s market and you need money for a real estate investment, a hard money loan might be a good option.