Does the phrase “hard money loan” make you think of fast and easy business deals that result in “cold, hard cash?” If so, you aren’t too far from the truth of the matter.
However, just because a hard money loan offers fast access to financing, it doesn’t mean it is the right option in every situation.
If you are considering a hard money loan, it is best to learn more about it first.
Hard Money Loans Defined
A hard money loan is a type of loan you secure with real property. They are often considered a “last resort” or a short-term bridge loan from a private money lender.
Usually, the loans are acquired for real estate transactions.
Hard Money Loan Lenders
Usually, hard money lenders are private companies or investors that deal mainly with this type of lending. You will not find local banks or credit unions that offer hard money loans.
A hard money lender is not subject to the same regulations as other lenders. That means they are usually free to make rules about what debt-to-income ratios and credit scores they will accept from borrowers.
You can find hard money lenders who will provide you with a loan even if traditional lenders have denied you. One of the most important factors a hard money lender considers is not a borrower’s creditworthiness. Instead, they focus on the value of the property being purchased.
How Hard Money Loans Work
Hard money loans usually have terms based on the purchased property, which is also used as collateral rather than the borrower’s creditworthiness. Because traditional lenders, like banks, don’t offer hard money loans, the lenders are usually private people or companies that see value in the venture.
Property flippers often look into hard money loans. These are individuals who plan to renovate and resell the real estate being used as collateral.
The higher cost of hard money loans is usually offset by the borrower who plans to repay the loan quickly. Most of these loans don’t have terms longer than one to three years.
Is a Hard Money Loan the Right Option for You?
Hard money loans may be the right option if you can’t secure traditional funding for a real estate purchase. That’s because these loans usually focus on the collateral’s value, which means they can be finalized sooner.
Also, most lenders won’t spend as much time as traditional lenders who look over your application, but you still want to make sure you repay them on time.
Once you have built a relationship with a hard money lender, it will be even easier to fun future property purchases.
Taking Out a Hard Money Loan
Are you interested in taking out a hard money loan? If so, the information above should help you decide if it is the right option for you.
Do you need other tips and information about important resources and topics? If so, be sure to check out some of the other blogs on our website.