About Hard Money Loans
There are a variety of different types of hard money loans, such as the bridge loan, fix-and-flip loan, owner-occupied loan and construction loan. Hard money loans are based on the value of your property as collateral. Your credit and income are much less of a consideration in the world of hard money because it’s mostly about the collateral.
Your ability to pay the loan back is important, but hard money lenders know they have a recourse should things go south. This is unlike traditional mortgage loans where poor credit and questionable income is a deal breaker. In fact, hard money lenders may even forgive bankruptcies and foreclosures. Generally speaking, they are individual investors and firms that make decisions on a case-by-case basis, with great leniency.
More About Hard Money Loan Types
Real estate investors need money for different reasons and there are loan types to accommodate their needs. For starters, a bridge loan lets you buy a property fast, then resell or refinance that property. You can also use a bridge loan to buy a property before you get a cash down payment from selling a property in your real estate portfolio. The nature of a fix-and-flip loan is evident by the name; you buy, fix and flip the property, then pay off the loan. A construction loan is used by real estate developers for new construction projects that will be sold or refinanced.
What happens if you want to live in a property and need a hard money loan? There is an option for that, but it’s less common. It’s an owner-occupied loan for consumers who can’t qualify for traditional mortgage loans. Hard money lenders tend to shy away from owner-occupied consumer loans because there’s a lot of red tape and regulations involved. Nevertheless, there are some lenders who offer this loan type.
A Closer Look at Hard Money Loans
If you have ever participated in the mortgage loan process, you might find it hard to believe that the application process for hard money loans is sometimes less than a week. Specially, there’s a chance that you could apply for a loan on Monday and get funded by Friday. The loan process is not just fast, but it’s also void of the common hassles of bank loans.
You will likely be required to put money down for a hard money loan and the amount will depend on the Loan-To-Value (LTV) ratio or After-Repair-Value (ARV) ratio. Loan terms are typically one to several years, though one year is common. As opposed to making monthly principal and interest payments, there’s a chance that you will only make interest payments. In fact, you may not be required to make any payments at all, until the loan matures and you make the balloon payment. Just keep mind that it depends on the lender. That final payment includes the principal, interest and fees.
Is a Hard Money Loan a Good Solution?
If you are able to secure a traditional mortgage loan, then you probably won’t need a hard money loan. If you can’t, then you should weigh the pros and cons. While a hard money loan has high interest rates, many fees and a short term, it also provides you with money quickly. For some real estate investors, a hard money loan is great tool to be use when needed.