Have you ever wondered what a hard money loan is, how it’s different from other loan types, why you would ever need one and if you qualify for one? This page will answer all of your hard money loan questions. At Your Finance Partners we are just that, your partner. We can help educate you and point you in the direction of the resources you need.
What is a Hard Money Loan?
Hard Money Loans (HMLs) are often called Short Term Loans. They are acquired based on the value of the asset being funded more so than your credit worthiness. Hard Money Loans are typically funded more quickly than traditional loans. Hard Money Loans are often used in real estate transactions to fund short term investments like the purchasing and flipping of a home or other real property. This is one of the biggest draws for this type of loan. For investors, “time is money,” so this is a “faster and easier” way to acquire funding.
Hard Money Loan Versus A Conventional Loan
- Loan terms assessed based on the asset, not your personal credit worthiness
- Funded and closed very quickly
- Higher risk for the lender
- Higher interest rate for borrower
- Short term loan
- Private company lender, not a bank or credit union
- Streamlined application process
These loan features are not usually a deterrent for real estate investors who want to “get in and get out quickly,” so that they can turn a profit in a relatively short period of time and then move on to the next investment opportunity.
How to Qualify for a Hard Money Loan
When you apply for a Hard Money Loan, your financial credit history will be reviewed, but it will not be scrutinized as closely as it would be to qualify for an FHA or traditional, conventional loan. Even applicants with bankruptcies or inconsistent work history can be approved for Hard Money Loans. This is because your credit worthiness is not the lender’s main concern. Rather, the value of the property you are trying to purchase will be closely evaluated. That way, the lender will be assured that in the event you default on the loan, they will be able to take ownership of a real asset that will be worth as much as, or more than, the amount of money they loaned you.
When Might You Want To Look Into A Hard Money Loan?
Fix and Flips
The most common reason people apply for Hard Money Loans is to fund the purchase, renovation and resale of a home as an investment opportunity. Flipping homes has become a very popular way for some investors to take advantage of the fast-paced rate of growth of real estate across the country. Competition is much more fierce than it was even ten years ago. Being able to move fast to acquire the cash necessary to close a deal is a critical key to success for every real estate investor, especially the home renovator – flipper.
New Construction or Land Purchase
Another reason to consider a Hard Money Loan is to purchase land to build a new home or several homes. When starting from the ground up in building a new home or homes, you might want to consider a construction and land loan. This is a short term loan that will allow you to purchase the land and build the structure you desire. The funds are dispersed in phases as different portions of the construction are completed. The advantage to you as the borrower is that you will only pay interest on the amount you are borrowing as you go along, instead of taking out the entire lump sum up front and paying interest on money you don’t really need yet. The advantage to the lender is that he can make sure the funds dispersed have indeed been spent as they were meant to be spent before more funds are released. This helps keep the construction process on schedule without undue delays and cost overruns.
Buy and Hold Loans
Some investors use Hard Money Loans to meet their short term cash needs. These loans are often called Buy and Hold Loans. Often the cash is used for acquiring foreclosed or undervalued commercial, industrial or residential, multi-family properties. The ability to quickly acquire the cash needed to make these types of acquisitions happen is a huge advantage in the competitive climate of today’s real estate market.
Commercial Hard Money Loans
Have you been wanting to purchase an apartment complex, office building or commercial/retail space as a way to generate income, but you just don’t have the “seed money” or capital to jump in and get started and you know that you will not qualify for a traditional commercial loan? Then perhaps this is a good time to consider looking into a Commercial Hard Money Loan. If the property is a good value, you can more than likely be approved quickly and start seeing a healthy income stream within a few short weeks.
Your Finance Partners are the Best Lenders for You
Hard Money Loans are not for everyone. But learning about the benefits of this type of loan will help you be more able to make an informed decision. You no longer need to assume that the opportunities of investing in real estate are beyond your reach. Your Finance Partners are here to answer any and all questions you may have. Talk to us if you have any interest, that way, when you do find the right investment property, you will be more confident and ready to act quickly and begin to realize your investment dreams.
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