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Many people have heard about hard money loans, but there are unclear as to whether or not they’re the right option for them. Hard money loan is a short-term real estate loan that extended to Real Estate Investors by individuals or organizations. Thanks to all of this flipping real estate shows oh, many people are interested in investing in real estate that they don’t have the funds to do so. Hard money loans could make it easier for people to get into the market who might not otherwise have a chance to do so.
Before you even think about hard money loans, it’s a good idea to learn the pros and cons.
Hard money lenders usually have high interest rates for their loans. This rate amount will greatly affect the final amount that’s due at the end of the loan term, and a few percentage points can make a huge difference in the the final price of the loan by as much as thousands of dollars.
Unlike traditional loans, hard money loans do not come under federal government regulation. This means that unscrupulous lenders are able to worm their way through the market, putting investors’ financial security at risk.
Short Loan Terms
Hard money loans usually last for just a short period of time, usually ranging between one and three years. Most loans actually only last a 12-month period. This means that the full loan amount will come do at the end of the loan. If the house is not sold, you’re going to be on the hook for that loan. This will force you to find another source of funding like refinancing.
Even if you decide to seek out refinancing, you may not be able to get it. This is because many banks require that a property be held for a certain amount of time before qualifying for refinancing. If your hard money loan comes due before you’re refinancing is approved, you could be in a serious financial bind.
There are several reasons that getting a hard money loan could be a really great idea.
Low Credit Scores Approved
One of the most exciting things about hard money loans is that you can qualify even if you have a really low credit score. Most traditional lenders will not touch you if you have a low credit score. Hard money lenders aren’t interested in your credit score. They’re primarily interested in the collateral that you’re bringing to the table. The real estate investment property that you’re buying is your collateral, and that will be used as a basis for the hard money lender supplying you with the loan.
They’ll Lend When No One Else Will
Traditional lenders tend to shy away from short-term real estate investments. They prefer to fund projects that are a sure thing, and short-term real estate is not a sure thing in their eyes. Hard money lenders, on the other hand, live for this sort of investment. They’re usually willing to work with anyone who has a good real estate investment business plan.
Low Wait Times for Money
As luck would have it, the best investment deals tend to land in front of you at the last minute. Sometimes you literally have no time to waste when it comes to becoming part of a potentially lucrative deal or investment opportunity. Traditional loans take a long time to get you the money, if you’re even approved. A hard money lender can get you the money that you need in as little as a week, allowing you to act quickly on those last-minute opportunities.
There many different ways that a hard money loan could be the absolute best option for you. As you can see, there are also cons, so check everything out carefully to make sure that it works for your financial situation at the moment.