Getting approved for a real estate investment loan from a traditional lender is a real hassle, especially if you have a questionable, or extremely poor, credit history. With a low credit score, it can literally take you weeks or months to be approved for mortgage. Even if you have a good credit history, it can still take some weeks for the process – beginning to end. It does not matter that sometimes you’re in severe need of quick money. The process takes time – end of story.
Hard money lenders, on the other hand, consider the collateral you’re giving up – as opposed to your financial capability to pay the loan back. Hard money loans require you to put up collateral – incase you default on the loan. Hard money loans are usually meant to help businesses financially, or to help businesses buy land/property. If you neglect to repay the money given to you, then the hard money lender who gave you the money will take possession of the collateral and sell it to get back their money. Lenders prefer not to take possession of your land – they’d rather get their loan repaid.
Hard money loans are most convenient and valuable to investors who want to renovate, or improve, a real estate property prior to selling it at a higher price. Real estate investors generate an ROI and repay the borrowed cash within a short period of time.
Hard money loans, like any other loan, come with their own advantages and disadvantages. This article discusses some of the pros and cons of hard money loans.
Hard money loans have short approval timelines
Hard money lenders are not concerned about your credit rating. Hard money lenders are more concerned about the collateral and will process your loan quickly if your collateral justifies the loan. They only care about the collateral. It’s important to be aware that hard money lenders aren’t always interested in taking possession of your property. The more information you provide about the value of the property, it’s initial cost, and after repair value – the faster they can process your hard money application.
Unlike standard loans, hard money loans arrangements and provisions are flexible. Instead of dealing with a large corporation, you’ll be speaking to an individual who is prepared to assist you create the best loan possible. They do not adhere to a standardized set of guidelines when setting up your loan repayment schedule. Lenders are extremely flexible, and work with you to give create a plan plan that works best. That means you can negotiate a flexible timeline, and negotiate every single variable of the loan. Each lender is different, so if one lender is being difficult – you can go to another one.
When it comes to hard money loans, the lender is most concerned with how secure the loan is. If you would like to invest in real estate, the lender will give you a loan value as much as 70-80% the properties value.
In case you have any issues with your credit history, that’s ok. Some lenders don’t even look at your credit score.
When it comes to loan-to-value ratios, hard money lenders prefer low ratios, with the highest being between 50 and 70 percent. They do this to give themselves a better prospect of getting their money back should they have to sell the property after your inability to pay the loan.
You can apply and get a hard money loan in a matter of weeks. This is valuable, especially to borrowers looking buy a real estate investment property fast.
Disadvantages of Hard Money Loans
Unlike conventional loans that take longer to be paid, hard money loans have been designed as a short term solution. This usually means that you will need to repay the loan in the shortest period possible, prior to the hard money lender your property. If you don’t, the lender will take your asset and sell it – in order to get their cash back.
In contrast to traditional loans, hard money loans tend to be more expensive. In addition to the loan origination fees, you’ll also cover closing and servicing expenses. If you take hard money, it can cost you 10 percent more than it would have on the standard loans. Obviously, hard money loans are much convenient.
Hard money loans have a typical than normal interest rate because of the “extra risk,” the lender is taking. Interest rates usually range between 9 and 14 percent.
Before giving you a hard money loan, lenders ask that you provide a down payment of up to 25-30 percent. This is supposed to incentivize you to complete the project
If you decide a hard money loan is right for you, the next step is to reach out to us. Delancey Street is concerned about one thing, and one thing only – your project. If we think you’ll succeed, we’ll give you the funding you need. Help us understand your opportunity, and how our funding can help you manifest your goals. We focus on your end game, and look for a business plan that shows how much money you need, how you’ll use it, and when the loan will be repaid.