Hard money loans are asset-based loans made to investors to finance their acquisition of a property or for new construction. Hard money lenders specialize in these types of loans, as conventional lenders generally do not offer them. These types of loans are short-term and typically carry a term of 12 months or less, though some can be longer. The maximum loan term depends on the lender.
Hard money loans are usually secured by real estate, with the value of the collateral property being equal to or higher than the amount owed on the loan. Like all other types of real estate loans, hard money loans have an interest rate and closing costs that the borrower must pay. These interest rates are usually much higher than those charged by banks since hard money is riskier. However, borrowers who use hard money save on time and paperwork because it is a far quicker process than most conventional bank financing options.
Here are reasons why hard money loans stand out;
They are easy to qualify for
Hard money loans are easy to qualify for. Unlike traditional loans, hard money loans are based on the asset rather than the borrower’s credit. The borrower only needs to prove that they can pay the loan back. Hence, hard money is a fast way to get approved for a loan since it takes less than 24 hours to get approval on a hard money loan.
A less rigorous underwriting process
Hard money loans are known for having a reasonably rigorous underwriting process. With most hard money lenders, the property itself is used as the only collateral on loan. As a result, lenders can process hard money loan applications more quickly than traditional loans. Investors can obtain funding in a matter of weeks rather than waiting several months for a bank to make a decision.
They offer fast funding
The first of the benefits of hard money loans is that they offer fast funding. The speed at which you can get a hard money loan into your hands is one of the main reasons why borrowers consider them over traditional bank loans. While a traditional lender may take weeks or even months to decide, you can get a hard money loan in hours or a few days with some lenders. This is because hard money lenders in Kansas City MO, don’t go through an extensive background check like banks do and instead focus on the profitability of the investment for which you need funding.
However, it’s important to note that not all hard money lenders are fast. Some may take weeks before they can approve your loan request. Additionally, even though most will be quick to give you their decision (approval or rejection), it may take longer than three days for them to actually fund your loan (and sometimes they will fund two separate chunks). It all depends on the lender. So, it’s important to enquire about their loan approval period before starting the process.
Hard money lenders do not concentrate on the borrower’s debt-to-income ratio and credit score
Hard money lenders do not concentrate on the borrower’s debt-to-income ratio and credit score. Instead, they focus on the value of the property being purchased and its future value after it has been rehabbed. If you have bad credit or no income, that is not an issue with hard money lenders.
The cost is not prohibitive
One of the biggest reasons why a hard money loan is such an attractive option is that the cost is not prohibitive. A hard money loan will typically be more expensive than a traditional loan. However, they are much less expensive than many other alternative loans. As mentioned above, there are no restrictions on the use of the funds when using a hard money loan. This means you can use it for all aspects of your business and development project by leveraging your real estate assets as collateral.
A solid business plan and exit strategy are important with any loan, and this holds true with a hard money loan as well. It’s essential that you have these things in place before approaching any lender to ensure the best chance of being approved for your funding request.
You can use them for many projects
Hard money loans can be used for a variety of real estate investment projects. The main project types are fix and flip, fix and rent, and new construction.
- Fix-and-flip investing involves purchasing a property with the intention of repairing it to increase its value before selling it. This type of project is often funded with hard money loans because they are designed for shorter time spans than conventional loans.
- Fix-and-rent investing is similar to fix-and-flip investing, but instead of selling after repairs, you rent out the property.
- New construction projects typically involve building or renovating an entire residential structure from scratch.
Hard money loans are another option for real estate investors who want funding for their investment projects
While hard money loans are designed for real estate investors, they can be a good alternative to traditional financing if you have an investment project in mind. A hard money loan is a short-term loan that’s secured by the value of the property (not your credit score). Interest rates are higher than traditional loans because it’s assumed that you’ll use the funding to improve the property and sell it quickly for a profit.
The main benefit of hard money loans is how fast they are compared to bank loans—hard money lenders can make approvals within days, not weeks or months. This speed is especially convenient when buying at an auction or in a short sale situation, but it also helps with renovations too.
Hard money is generally used for buying or renovating properties, which means that both home flippers and real estate developers can take advantage of this type of financing.
Key Takeaway
Real estate investors, real estate professionals, and homeowners can now access a new hard money loan product offered by leading hard money lenders in the industry. Most of these lenders offer their own private equity loans to borrowers who want to finance investment property or refinance their existing mortgages. That said, if you need a hard money loan, look for a reliable hard money lender near you today!
