The Beginner’s Guide to Hard Money Loans
What if there were a way to borrow money without going through traditional lenders like banks and mortgage loan offices? What if you could get money directly and quickly from investors instead?
You can, and it’s both easy and fast. It’s called hard money.
How a Typical Loan Works
If you go to your bank, credit union or other lender, they’ll usually take a look at your credit score and your income to determine if you can get approved or not. If you have a high debt to income ratio or a poor credit score, your chances at getting approval fall considerably.
What’s more, traditional lenders take a painfully slow amount of time to determine your approval or denial. If you can’t verify your income to their complete satisfaction or if you have negative items on your credit report, the process can take even longer and you may never get the approval you need.
This can set you back considerably when it comes to buying a car, a home, or even getting approved for a credit card.
How a Hard Money Loan Works
Hard money works differently. Hard money lenders lend based on the collateral you have securing your loan. This could be a car, property or anything of value that tells the lender “this is what I have to offer. If I can’t repay my loan, you can take this, sell it and get your money back.”
As you can see, your ability to repay is less of a concern to hard money lenders than it is to big banks and financial institutions. What they’re looking at is the value of the collateral that you’ve put up to secure your loan.
This means even if you’ve had credit stumbles in the past, you can still get approved for a loan quickly and hassle-free.
Why Would You Ever Use a Bank Again?
Upon hearing this, many people rightfully ask “if hard money loans are so fast and easy, why would anyone ever use a bank again?” And that’s a great question.
Hard money loans aren’t the right choice in every situation. They’re best for short term (1-5 year) loans. You don’t want to keep them any longer than that, since interest rates are usually higher than on traditional loans.
With this in mind, however, hard money loans do have some other significant advantages over traditional lending. The most notable benefits include:
Fast Approval Process – Because hard money lenders don’t usually look at your credit reports and other paperwork, but instead focus on the collateral, they can close loans faster than a traditional bank. Traditional lenders don’t really want your property, but they will take the time to do things like verify your income, review your bank statements and generally nitpick your loan application looking for any little reason to deny it.
With hard money loans, once you’ve built a relationship with a lender, the process is very straightforward and simple. This brings us to our next point…
Speed: A MUST for Hot Markets – If you live in a hot, bustling real estate market, you know that speed is king. Being able to get the money you need to close on deals quickly is vital to getting the property you want at a competitive price. The last thing you want is the bank dragging their feet on your loan application!
Greater Flexibility – Hard money lenders don’t use a typical underwriting process the way traditional banks do. They look at each deal individually on its own merits. By fostering a relationship with your lender, you may be able to adjust repayment schedules and other items to your benefit. It’s much easier to close a deal with a lender that understands your priorities over a big-name corporation that treats you like a number!
Here’s the Best Way to Use a Hard Money Loan
Ideally, you’ll want to use a hard money loan for fix-and-flip properties, commercial properties, land and construction. Hard money loans are best for the short term since they can be expensive and lenders may value your property more conservatively than you’d expect. If the property is a fixer upper and it’s in need of serious repair, you may be better suited to apply for an FHA 203k loan to rehabilitate it at a lower cost.
How to Find a Hard Money Lender
If you’re convinced that a hard money loan is the way to go, you’ll want to reach out to investors. Fortunately, it’s easy to find local real estate agents and real estate investors who lend money based on collateral. Don’t hesitate to reach out, discuss your needs and create a lasting relationship that gives you access to the funds you need – fast, easy and hassle-free. To get more information about hard money loan process and how we can help, please contact our hard money lenders at (818) 584-2424. We offer Free Consultations.