Hard money loans refer to financing provided by non-institutional lenders. There are many hard money lenders that offer fast financing at attractive interest rates.
As a borrower, you’ll need to do a thorough check on the lender’s reputation and business, but as you do your research, you’ll discover that hard money lenders can provide a great advantage in your quest to finance your real estate investment project.
Benefits of hard money loans
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Faster Approvals – Without a doubt, one of the main benefits of a hard money loan is the fact that investors can get pre-approved within a day or two, given that they have submitted the number of documents requested by the lender. Hard money lenders focus primarily on whether the asset itself has a good market value and whether the borrower’s equity is at least 20%. Financing can be done in less than a week, compared to normal loans that can take a month or even longer. When asking about hard money lenders, a key question to ask yourself is how quickly they can fund.
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Flexible Payments – With a private lender, you’ll have more freedom to create a custom payment plan. With a large financial institution, you won’t have this freedom. Instead, you will need to accept the payment terms set by the bank. However, with a private lender, you can discuss and come to a mutually agreed payment plan that you think is right for you.
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Fewer Requirements – When applying for a loan from a normal financial institution, you are expected to meet many strict requirements such as income history, experience, etc. It’s no secret that bank approvals can be a cumbersome process. A hard money lender probably won’t burden you with as many requirements. As long as you have a high-value asset with at least a 20% equity stake, there is a good chance that you will qualify for the loan.
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Zero Prepayment Penalties – If you get a loan from an established bank, you may be subject to prepayment penalties if you pay off the loan before the due date. Most fix and flip lenders don’t charge prepayment penalties, so if you find some extra money and decide to pay off your loan before the due date, you can do so with confidence without worrying about being penalized for it.
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Credit history isn’t a big deal: For large lenders, your credit history can have a big impact on whether or not you’ll get a loan. With private lenders, less emphasis is placed on poor credit. This is because a private lender bases loan approval on property value, borrower’s equity, etc. As long as you meet these criteria, you have a good chance of getting funds.
An additional advantage of obtaining a loan from a hard money lender is that as more properties in the community are renovated, it is expected that property values will increase and the quality of the neighborhood improve.