What is a Hard Money Loan?
A hard money loan refers to a loan that is obtained based on the value of a real estate property. These forms of loans have higher interest rates than those obtained from conventional commercial or residential property loans. They are also given by private investors through local areas brokers that are knowledgeable in providing hard money loans.
Why You Should Use Hard Money Loans
Highlighted below are the major reasons why you should use hard money loans for investment properties.
Since the ventures that hard money loans are used for are risky for the lenders, they offer higher interest rates than those of traditional loans. The risky nature of the ventures is due to the amount of capital that the lenders put in. This decreases the amount of capital the borrower invests. Hard money loans usually have lower loan-to-value ratios than traditional loans since the borrower uses the property as protection against default.
As an investor, a delayed loan can make you miss a crucial financial opportunity. Thus, you want to receive your loans as soon as possible- here’s where hard money loans come in. Hard money loans are also ideal for investment properties due to their quick turnaround. Turnaround is usually between one to two weeks.
Traditional loans are not flexible. They are very difficult to negotiate. Hard money loans, on the other hand, are more flexible. Lenders of hard money loans do not need to use the same underwriting process that is used by traditional lenders. They can examine each deal individually thereby providing more flexibility. Instead of borrowing money from traditional banks that are very strict, lenders of hard money loans will give listening ears to your specific needs.
Hard money loans do not adhere to the same rules that traditional lenders follow. Since it’s not every investor that will like to depend on their credit or secure a second mortgage, real estate investors usually prefer hard money loans to loans from traditional banks.
In addition to the aforementioned reasons, hard money loans are also useful for short-term fix-an-flippers and investors that buy and hold properties and are interested in renovating investment properties. The approval process of hard money loans is also short. They also offer interest-only payments and can be sued to buy and renovate an investment property.
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