If you need extra cash to fund your business venture or solve your financial woes, taking out a loan is a great option. However, with the different available loan options today, finding the best one for your needs can be a bit confusing and challenging at the same time.
One of the options you can consider is hard money loans, which can be beneficial if you don’t qualify for some form of financing or in need of funds. But before you take out hard money loans, it’s best to know what they are and how they’re different from other traditional loan options.
An Overview Of Hard Money Loans
Hard money loans are a type of loan in which funds are secured by real properties rather than the creditworthiness of the borrower. Primarily used in real estate transactions, the loans usually last for one to three years and are commonly used to get money quickly.
For instance, if you like to purchase a new house but your current residence isn’t sold yet, hard money loans can be a way to use your home as collateral and free up your funds to buy a new place. Since the funds can be provided quickly, it’s also an appealing option for homeowners who are at risk of foreclosure.
The main difference between hard money loans and some loan types like traditional mortgages is that your property secures the loan. If you want to know more about hard money loans, especially the risks and possible scams that go with it, you can read Garnaco's blog post.
Other Things You Should Know About Hard Money Loans
Now that you have an initial idea about hard money loans, here are some important things you need to know about them:
• More Flexible
With traditional loans, like bank loans, you’ll find it hard to get new loans for another property you’re interested in. Good investors would use hard money loans to buy some properties in a certain period of time.
If you’re one of the real estate investors who want to be successful and make more purchases, taking advantage of hard money loans is a good way to go.
• Hard Money Loan Has Higher Rates And Shorter Terms Than The Traditional Bank Loans
The terms of a hard money loan may vary depending on your preferred lender. But the golden rule is that such loans have shorter terms unlike the traditional bank loans with maturities ranging from 1-3 years.
Lenders often anticipate that rehabbers can finish the renovation and re-sell the property before the loans are due and use the sales to pay back loans. Normally, the loans are structured with the thought that monthly interest payments are made during principal and renovation becomes due after the house is sold.
Take note that since hard money loans offer shorter terms, they tend to have high-interest rates. The interest rates may also vary–ranging from 8% to 16%.
• Faster Turnaround
In comparison to conventional bank financing, hard money loans offer much quicker access to capital. These are processed fast with several lenders offering same day loan approvals. Also, funds are dispersed rapidly–typically within days of the approval.
• More Convenient
If you’re looking for lending alternatives, you’ll be happy to know that most hard money lenders don’t adhere to the typical underwriting process. Rather, every loan request is assessed on its own and considered as a unique case. For this reason, you can negotiate with more favorable terms.
Even the monthly payments for hard money loans can be renegotiated with other lenders. During the set period, you can discover or ask for more opportunities to pay back for your loan.
Conclusion
Hard money loans are a great option if you don’t qualify for any traditional form of financing or if you need fast funds. However, understanding everything about these loans first is crucial to help you determine if it’s the best option for your needs.
