What Is A Hard Money Loan? Do I need it?

You may have heard the term “hard money loans” but weren’t sure what they were. In this post, we’ll explain exactly what type of loan this is, and whether or not you would benefit from getting one.

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So what exactly is a hard money loan?

Most loans are given through more traditional lenders, such as mortgage lenders. They will want proof of credit scores and income, to ensure loans can be repaid. Traditionally, getting approval can be a timely process. If you have a bad history as far as your credit, or your income is difficult to verify, you may not even be approved.

Let’s talk about the alternative. A hard money loan is given usually through individuals or investors. Money is lent using your property as collateral. These lenders care less about your ability to pay back loans because they are counting on your collateral being sold to recoup what they lose on the loan itself.

The interest rates for a hard money loan is often higher than the other loans. They don’t tend to last long, usually between 1-5 years.

Would I Benefit from Hard Money loans versus more typical ones?

This all depends on exactly what your goals are, your financial situation, and what you need a loan for.

If your financial history isn’t the best, you may have difficulties securing a loan from typical mortgage lenders. Bad credit history, and even more personal financial troubles like repossessions and foreclosures, can affect loan approval.

If real estate investment opportunities are your goal, finding a hard money lender might be extremely beneficial. That’s because hard money loans are typically short-term. If the idea is to buy a property and quickly renovate and flip, then this loan might be faster to achieve than others. A fast turnaround on application to approval allows hopeful individuals to act quickly when an investment property opportunity presents itself. You can buy a house to flip quickly and snag a great deal!

What you need to always remember is that the rewards should be outweighing the risks of the terms of your loan, when deciding to move forward with a lender.

reasons to consider a Hard Money Loan

Pros of hard money loans are as follows:

• Hard Money Loans Are Faster To Obtain; since these are focused on collateral, less time is spent going over your income, credit scores, and financial ability to repay the loan.
• More flexible than other lenders; Hard Money Lenders look at every application on a case by case basis. You can have term limits and payment schedules tailored to your needs a little better than other lenders who usually go by a generalized guideline.
• The Approval Process Is Less Strict; say you run into a few foreclosures or bankruptcies in your past. Lenders won’t take hard looks at this since their risk is lessened by the collateral of your property (which they can sell to recoup the amount of the loan).