Hard Money Loans
A hard money loan is a short-term loan that requires the borrower to provide an asset such as a home or business as collateral. These loans have also been called bridge loans. These are often used by house flippers or real estate investors who are fixing up one home while preparing to sell another one.
You can’t get a hard money loan from a traditional lender; you must go to an individual investor or private company. Investors might turn to hard money loans when they are denied at a traditional bank, or they want to avoid the long process of getting a traditional loan. Just like a traditional loan, the asset that is used can be foreclosed if the borrower fails to make the payments.
These loans are easier to get with less strings attached than a typical mortgage. The approval process is typically much faster and less stringent than traditional ones. This makes it ideal for those who want to purchase property quickly.
This article will help you to learn more about these. It will help you to see why investors use these types. You can also do more research to find the information you are seeking.
Why Do Investors Want to Use Hard Money Loans?
- They Have a Faster Close – Hard money loans are designed to cut through the red tape of traditional financing: https://mountvernonspringfield.com/what-is-a-fix-flip-loan-from-a-hard-money-lender/. This means that the borrower can negotiate shorter closing timelines with the sellers. Investors can provide sellers with proof of approved funds faster than they could if they had a traditional lender.
- You Can Limit Your Dependence on Credit – Experience of the borrower and the value of the property are what drives the loan amount and the terms of this type of financing. Lenders don’t judge the borrower solely on credit history when considering the application. Instead, the real estate value will be the key consideration.
- Get More Properties – This type of financing allows the investor to keep their own capital while they secure more properties. That way they conserve their cash on hand to complete other projects. This way their money isn’t all tied up in one project, it allows them to work on more than one project at a time.
- Cash-Out Refinances Loans are Available – Investors can use this type of financing to do a cash-out refinance on the properties that they own. See more here. This gives them additional capital to fund cash only property purchases. It also allows them to apply down payments on many different properties.
- Avoids Focus on Bankruptcy – With this type of loan, a past bankruptcy will not automatically disqualify the borrower from getting the funds needed. This helps those borrowers that have had past bankruptcies in their credit history. The loan approval will be based more on the value of the property and less on the past credit history.
- Lenders Can Offer Advice – The lenders will have a vested interest in the buying and selling of the borrowers’ properties so they will be able to offer advice to them if it is needed. This is because the safety of the loan is tied directly with the property that the investor is trying to obtain. The lenders will want to offer advice to make sure that they will get their money back.
- They Provide Solutions – These backers are also more likely to be more flexible than a traditional banker. They can offer solutions to problems that come up in the process of improving, reselling, or renting properties. They encourage constant communication so that when a problem comes up, they can help to provide a solution.
- Tailored Options for Loans – Hard money bankers can provide borrowers with loan options that are tailored to their specific needs. LTV – or loan-to-value – interest rates, points, and term lengths can be tailored to fit on a case-by-case basis. They also allow investors to bring cross properties they own so that they can meet the LTV requirements.
- They Have a Stronger Negotiating Position – This type of loan can provide the borrower with more negotiating power when it comes to buying properties. This can give them an advantage when it comes to negotiating against other bidders. This can be considered a more reliable form of funding than traditional lending.
- Quicker Approvals – A hard money loan can be approved in as little as three days. A traditional loan can take up to sixty days – or more. This makes it easier for the borrower to get the money they need in a competitive arena.
Conclusion
Hard money loans are mainly used by investors who are buying and renovating homes for resell. They are easier to get than traditional lending because it is based on the value of the property rather than a person’s credit history. This makes them ideal for property flippers who do this for a living.
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