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What is the first thing you think of when you hear of “hard money loan?” A hard money loan means that you can use real estate to get a short-term loan. The loans come from an independent investor who is different from traditional lenders like credit unions and banks. The terms usually are twelve months, but it can also extend for like two to five years. The loan requirement is monthly repayment of interest.
The amount of hard money you can borrow mainly depends on the value of the property. It could be a property owned by the borrower, or it can be a property the borrower indents to purchase. The lenders are mainly interested in the value of the property and not the credit of the borrower. But you need to know that credit is also essential to the lender. You can get the best deals from Indianapolis Hard Money Loans.
If you are a borrower and you cannot get a traditional loan because of short sales for foreclosure you can still qualify for a hard loan. What you need to have is sufficient equity in the collateral property. If your loan application at the bank is rejected, then you have a hope of getting it from hard money lenders. They can still accept your loan application.
What are the types of property for hard money loans?
As a borrower, you can acquire a hard money loan on different types of property. It can be something like industrial, land, commercial, multi-family residential and single family residential. You may come across some specialized hard money lenders on a particular type of property. For example, some may specialize in residential and not land. The reason is they may not be experienced in some areas. Most of them have a particular niche which they are knowledgeable. If you need this type of loan, you should ask them the type of loan they are comfortable with.
If a borrower is occupying a residential property and wants a hard money loan, most of the lenders may not approve of it because it has additional regulations and rules. But some may be willing to go through the paperwork. Because of risk issues, most of the lenders do 1st position loans while few may do 2nd position loans.
What can you use hard money loans for?
You can use hard money loans for many deals. If you want to buy the primary residence and you have a good income history, excellent credit rating, and you do not have a foreclosure or short sale, the best way is to consider conventional bank financing. But you should only do this if you are okay with the lengthy approval process. If you do not have the time, you can consider hard money loans. If you need money within a short time, then the best option would be going for hard money loans.
Hard money loans are best in below situations;
• Construction loans
• Fix and flips
• Land loans
• If you need to invest quickly in a real estate project
• If you have credit issues
Who should consider hard money loans?
Real estate investors go for hard money loans for different reasons. The primary purpose is to get funding quickly for their projects. For example, hard money lenders can fund you within a week. They make it convenient for real estate investors as compared to banks which can take more than a month to fund you. With hard money lenders, there are no lengthy application processes. It can take either one or two days at most. It can even be approved within the same day of application!
It is an advantage for real estate investors if they can get funding quickly avoiding the long wait from the bank and lengthy application process. If you are an investor and you want to acquire property whereby there is competition due to many bids, hard money loans are the best for you. You can also consider hard money loans if conventional banks reject your application. Things like credit issues, foreclosures and income history may make you not get approved for a loan by banks. Hard money lenders may try to consider you even when you have these issues.
Before you consider hard money loans, you need to have the right knowledge. Understanding everything about hard money loans is crucial because it will boost your confidence when applying for the loan. You can use hard money loans to fund your future real estate projects instead of waiting for the long bank process. While you may be scared by the interest rates, with time, you will discover the many benefits of hard money loans.
If you’re looking for financing options that are as easy as they come, hard money loans might be the solution. Perfect for investing in real estate, hard money loans offer borrowers easy access to quick capital, making it easier than ever to purchase property.
Is a Hard Money Loan Right for Me?
Though many investors choose to use hard money loans, you have to decide if this is the right financing option for you. While there are countless benefits with hard loans, will they meet your investing needs? Read on to learn why hard money loans work to see if they are the solution you need.
Why a Hard Money Loan Works
As you compare hard loans to other alternative financing options, you’ll see why real estate ventures are perfect for hard money loans. Consider the following benefits:
- Quick cashHard money loans are often the quickest solution for investors looking for access to capital ASAP. With a hassle-free process and very minimal requirements, investors are often able to cash in on their loan in one week or less.
- Lenient requirementsOther options for financing are notorious for their complicated application and acceptance process. With traditional mortgages, lenders are required to check that borrowers have a certain credit score, standard of income, and amount of debt. Investors that are lacking in any of these areas find hard money loans to be their saving grace.
Most lenders of hard money loans in Santa Rosa, California base their final decision on the collateral that investors use for their loan. If you have property that can be used as collateral, you should have no problem finding a willing lender.
- Flexible termsHard money lenders are mostly private institutions and individuals. This fact allows them to have more flexible terms when creating an agreement with borrowers. These custom loans are designed to fit whatever needs you have as a real estate investor.
- Access to more opportunitiesWith hard money loans, investors can easily access flexible cash, which allows them to take advantage of more opportunities that come their way. Instead of having to pass over an opportunity because you don’t have the capital, with hard money loans you’ll be able to say “yes” to any venture that looks like a good idea.
Downsides to Hard Money Loans
As with any financing option, there are downsides to hard money loans.
- High Interest ratesMost people that have reservations about hard money loans do so because of the high interest rates. These interest rates are often well into double-digit territory and are ever-increasing. Despite this, many investors figure the benefits outweigh the risks. As most of these loans are for short-term periods, the interest rate isn’t as impactful as it might be with a traditional mortgage or other financing alternative.
- Minimal regulationsWhile hard money lenders are regulated by the state, the lack of federal oversight worries some borrowers. With all of the loan sharks disguising themselves as reputable hard money lenders, many investors that are inexperienced with hard money loans may fall prey to unscrupulous activity.
- High feesHigh fees often accompany high interest rates with hard money loans. Most lenders like to include additional expenses with the initial cost of the loan and the interest. Early-payment penalties, underwriting fees, origination fees, and construction draw fees are all examples of what some lenders expect borrowers to pay when their loan comes due.
- Short termsThe short term of a hard money loan is a benefit in regards to the interest rates—not so much when considering the short payback periods. Some lenders even expect the loan to be repaid in two years or less.
While many investors ultimately decide that the benefits of hard money loans outweigh the drawbacks, you need to make that choice for yourself. Use this guide during your research of using hard money loans for real estate investment.[flexy_breadcrumb]