Investors know that every financial move they make will either benefit or harm them in the future. This is especially true in the real estate industry, as the market is always going up or down. With little room for mistakes, how does one know what financing options are the best?
Choosing Hard Money Loans
Real estate investors in Joliet, Illinois know they have options when it comes to finding funding for their ventures. While every option has the potential of providing them with the cash they need, some financing solutions are better than others. Read on to explore the differences between hard money loans and comparable financing methods.
Hard Money Loan
The hard money loan is often the financing option of choice for real estate investors. Whether they need to purchase a property, fund a fix-and-flip, or something more unconventional, hard money lenders are able to provide them with financing quickly to help them meet their goals.
Like other loans, the hard money loan comes with interest, but hard loans’ rates are generally quite high. These rates are ultimately balanced out by the length of the loan, as the short terms ensure that the interest is only charged during that time.
Once investors are approved for a hard money loan, they will likely see the money in a few weeks or even within that same week that they applied. The easier application process, short terms, flexible requirements, and quick cash make hard loans ideal for the prudent real estate investor.
Home Equity Loan
Home equity loans are taken out against an individual’s home equity (the difference in what the home is worth and what the individual still owes on the home). To qualify for this loan, you will need to own property—either your home or another property that you are investing in. If there is enough equity in your home, this money can be used as a down payment for another property or to purchase the property outright.
HELOC or Home Equity Line of Credit
The HELOC is like the home equity loan, yet it differs in that the borrower will be able to access the money through their line of credit instead of receiving it all at once. You will only qualify for this if there is enough equity built up with your other real estate properties. This option is preferable for investors that need money for their down payment or need to fund the purchase of their second property.
Cash-out refinancing is similar to a typical mortgage refinance. Instead of refinancing the amount left on a mortgage, the cash-out refinance allows an investor to take another, larger loan out so the difference can be paid out in cash. Essentially, this option will “reset your mortgage clock” and you’ll be able to use the extra equity in the form of a loan.
Line of Credit
Business lines of credit can be used for making real estate purchases. Investors will be able to withdraw money accordingly when they have to fund a real estate purchase. Though this is often a preferable solution for many real estate investors, it isn’t a hassle-free process. Investors must prove that they have good credit, are financially responsible, and have a proven track record with their investments.
Bridge loans are quite similar to the hard money version. A bridge loan allows an investor to access cash if they are between property purchases. For example, if an investor is awaiting the sale of one property while trying to purchase another, a bank can provide a bridge loan to help them purchase the new property.
You have options as an investor when deciding which financing solution will be most appropriate. Keep this guide in mind as you continue to research your options with hard money loans.