What Are Hard Money Loans and What Are They Used For

Hard Money Loans

If you don’t know then a short-term loan is secured by real estate and this is a type of loan that is funded by private investors unlike regular lenders such as credit unions or banks. Though the term for the loan is around 12 months it can be extended to longer for almost 2 to 5 years. The loan can be returned with the monthly payment with interest after fixes.

One of the major benefits of these loans is that they can be obtained quickly especially when someone hasn’t been qualified from other financing options. This sounds tempting but what exactly makes hard money loans differ from traditional loans. Just continue to read the following for further information.

The Distinction

The major difference that makes hard loans different from conventional loans such as traditional mortgages, is that it is secured by your house i.e. its total market value at that time cannot be exceeded.  This also means that if the borrowers don’t have a great credit history or poor credit history then they can easily qualify for the loan because of their house value, they can easily qualify for the hard money loan. So having a strong financial record is something that isn’t compulsory in this loan type. And because of the little qualification requirement means the approval time will be shorter and you can get the money you need.

Who Can Use A Hard Money Loan?

Most real estate investors opt for such loan types. This is because the hard money lenders can quickly provide the money they need. In most situations, the hard money loan can be obtained within a week compared to the loan provided by the bank that can take up to 40 to 45 days. In some cases, the application process for the hard money loan can take up to 2 or 3 days, and the loan can even be qualified on the same day. You will feel lucky by the time when the loan will be provided on the same day. 

Because the loan funding can be obtained at a much faster rate comparatively than the bank loan is a greater advantage for a real estate investor. This is especially beneficial for them when a property is getting bids from different real estate investors; Getting the hard money loan quickly will help get the dealer’s attention and show their offers confidently apart from the existing buyers offering their bids having slow conventional financing.

Also, there is a huge probability that thy loan buyers have been rejected by the banks for conventional loans and this is why they are looking at the hard money lenders. We all know that life is unpredictable and will never be according to our plans. There can be scenarios where foreclosures, problems with credit issues, and Short sales, can happen. Also, not all of us have a greater financial history that banks will always require when someone applies for a loan. What if a borrower has started a new job but is now in need of quick financing the bank will quickly reject the application because it lacks the proper financial history even though the monthly income is pretty hefty. The hard money lenders will never look at these issues while approving the loan because the borrower will already have invested in the property.

Where Hard Money Loans Are Used For?

Though hard money loans can be very beneficial they aren’t suitable for all kinds of deals. When you are about to purchase a house with good credit and income history, there won’t be any issues such as foreclosure or short sale. Even it would be a great idea to go for the conventional loans instead, especially if the borrowers have got enough time to wait for the lengthy approval process from the bank. Hard money is widely used for real investors when there are no other financial options available and they are in need to get quick financing.

However, if you are still considering hard money loans then they are best for the situations such as:

  • When there are credit issues with the buyer
  • Construction Loans
  • Fix and Flips
  • Land Loans
  • When a real estate investor needs quick financing

Finding the right Hard Money Lenders

Now you know about how and where the hard money loan works. If you believe that you need to get a hard money loan then you can find it from dedicated hard money lenders. These kinds of loans aren’t available from traditional financial institutions. Here is how you can find the best hard money lender for the loan.

Company’s Reputation

Upon searching online you will find plenty of names as hard money lenders but you should look for the most reputed ones for you. You must look for them to have the right accreditation. Check the lender’s website, and reviews from the previous clients along with social media to get the idea about the company and how the company will communicate with their clients, and how the clients will interact with them.

Watch Out For Warning Signs

If you find anything suspicious about then there is probably something wrong. You can find it at any step of the process and there shouldn’t be any surprise for you. The signs such as charging the application fees as there aren’t any reputed hard money lenders that will charge for the application fee and any other fee upfront.

Bottom Line

Though this is a type of loan that comes with a higher interest rate and this may sound scary at first but the benefits and convenience it has to provide are unmatched and especially if you are a real estate investor looking for a quick investment option. Just make sure you have checked every clause before applying for the hard money loan. It is better to consult first if you actually need this loan or you can find other conventional loans.