Hard Money Loans
Hard Money Loans
What Are Hard Money Loans Used For?
Here are some common reasons that people seek out hard money loans instead of traditional loans.
Flipping A House
Real estate investors who make money by purchasing low-cost properties in need of fixing up, making value-boosting repairs and renovations and then flipping the homes for profit may utilize hard money loans.
Because these projects typically happen fairly quickly, professional flippers often prefer faster forms of financing. Additionally, because house flippers generally try to sell the home within a short period of time – typically less than a year – they don’t need a lengthy loan term you’d get with a traditional mortgage.
Purchasing Investment Property
Those who want to invest in rental property but don’t qualify for traditional financing might seek out a hard money loan to pay for their investment.
This method can be useful if you can’t get approved for a traditional loan due to credit history or you need more money than a traditional lender will let you borrow.
Purchasing Commercial Property
Similarly, a business owner might use a hard money loan to fund the purchase of commercial real estate if they’re unable to secure traditional financing. Hard money loans can be useful for entrepreneurs purchasing a unique property that doesn’t qualify for conventional financing. The same may be true for those who find traditional commercial loan limits insufficient for their need.
How to Get A Hard Money Loan
With hard money loans, the lender approves a borrower based on the value of the property being purchased.
The lender may do a quick check of your credit or finances, but in general, the process will be much less rigorous than with a traditional loan. This allows the process to happen more quickly so borrowers can get their money in a matter of days instead of weeks or even months.
The downside of this process is that the lender takes on significantly more risk, which translates to a more expensive loan for the borrower. Hard money loans typically come with high interest rates, and lenders might require larger-than-average down payments (though this isn’t always the case).
Hard money loans also tend to have short repayment periods – often just a few years. Compare this to traditional mortgages, which commonly come with 15- or 30-year terms.