Hard money loans are asset-based money lending systems used mainly by real estate investors. They have been a cause of controversy because of shady lenders who usually give loans with hidden interests. However, good and honest hard money lenders exist and still follow the laid-out lending regulations. Below, we list seven benefits of acquiring hard money loans.
Fast Approval and Funding
Traditional money lenders like banks have a thorough application process which usually takes 30 days or more. In the real estate business, 30 days is such a long time as property prices change quickly. Hard money lenders typically approve the loan in a matter of days, giving you enough time to buy the property while still on the cheap.
Higher Approval Rate
It is difficult for a real estate investor to get loans from banks as their requirements are usually many and tough to achieve. You will need to provide a credit score, show a reliable source of income, the value of the property, and your ability to pay that loan. You will most likely be given less money than you were looking for or not get the loan approval. This forces you to go to hard money lenders. They also take the property as collateral but don’t check on credit scores, improving your chances of loan approval.
Higher Loan Amount
Banks and other traditional lending services usually look at the property’s value now and give you a loan based on that amount. However, the alternative, hard money lenders grant you a loan based on the future value of your property. This allows you to get the best value for your property and more money to work with.
Getting Double Loans
Currently, banks do not offer you a loan if you have another one. It is too high a risk for them as it increases your chances of defaulting. However, hard money lenders do not have such restrictions. You can still get another loan on your property, even with another pending loan.
Convenience
Even though hard money interest rates are usually high, you get more flexibility and convenience than traditional money lenders. Banks require you to fill out many forms and provide many documents. For the investors who don’t like the hustle, hard money loans are the way to go.
Referral Network
Unlike banks, hard money lenders and real estate investors are connected as they all work in the same industry. In your pursuit of hard loans, you can get referrals from lenders or other real estate investors on some of the newest and hottest properties available in the market.
Short Term Financing
Hard money lenders provide real estate investors with short-term loans that they would normally not get in banks. Fix and flip loan is only offered by hard money lenders. It is a temporary loan of around 12 months and is meant for repairing property for sale. Banks don’t offer such as it’s not part of their business model.
Conclusion
As much as hard money loans have a bad reputation, it is beneficial and offers convenient solutions to real estate investors. Real estate investors should take advantage of this but use honest and reliable money lenders.
