What is a hard money loan?
Simply stated, a hard money loan is a short-term loan secured by real estate. This type of private money loan is very popular in the real estate sector. Because the money comes from private investors, you often do not have to meet the stringent qualifications required by credit unions, banks, and other conventional lenders. Usually, the term of the loan is around 12 months, though in some cases the term can also be extended to 2-5 years.
The amount of the loan you can get is determined by the value of the property you are trying to buy. This means that your credit score, though still important, is not the most important qualifying factor. So if you have not been approved for a loan because of a low credit score in the past, you are still eligible to receive a loan from a hard money lender.
Is a hard money loan right for me?
Loans can often be difficult to qualify for from traditional sources like banks. If you have ever been denied a loan or been given a hard time while trying to obtain a loan, or even if you have concerns about getting approved for a loan, a hard money loan might be the answer for you.
What types of property can I get using a hard money loan?
Since hard money lenders are private investors, there are fewer restrictions on the types of property you can buy using a hard money loan. You can invest in commercial properties, single-family residential homes, industrial properties, land, even multi-family residential properties. Some hard money lenders like to focus on a specific type of property, however, so shopping around is helpful.
Why are hard money loans better for real estate deals?
One major advantage to hard money loans is that they are funded more quickly. That way, real estate investors can get and use the money that much more quickly. Typically, hard money loans are funded within a week, compared to conventional bank loans, which could take 30-45 days to come through.
What do I need to secure a hard money loan?
Remember, hard money lenders are less concerned with your credit rating than with the value of the property you are trying to buy. This is because your share of the property is used as collateral for the loan. So long as you are able to make a down payment and have the capital to pay the interest on the loan, hard money lenders are usually willing to overlook any short sales, foreclosures, or other issues on your record.
You must also have a solid plan for how you will pay off the loan. Usually, borrowers plan to use the loan money to improve the property and sell it or obtain long-term financing at a later time.
If you have been considering a hard money loan to fund one of your future real estate deals but aren’t too sure or confident on how to begin, then this article surely has provided lots of information you need in understanding what a hard money loan is and how hard money lenders operate. Compared to conventional bank loans, hard money loans are easier to get and can also be gotten quickly. Even if the banks have rejected your loan application, you can still smile to a hard money lender because the chances of being granted a loan are way higher than that of a conventional bank.