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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 cash
Hard 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 requirements
Other 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 terms
Hard 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 opportunities
With 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 rates
Most 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 regulations
While 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 fees
High 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 terms
The 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.