Loan Worth

Is a Hard Money Loan Worth Your Financing?

Hard money loans are specialized financial tools often used by professional real estate investors. But less experienced investors need to educate them on the matter. To make the best decision for their particular project, prospective borrowers should know the advantages of hard money loans before applying.

What are the advantages of hard money loans?

The advantages of the Hard money loans are given by,

Hard money loans are approved and funded quickly:

One of the most significant advantages of using hard money loans is the speed of loan approval and financing. In many cases, hard money loan approvals can occur within a day. Hard money lenders will consider the property. The amount of down payment or capital the borrower will have on the property Borrower’s experience. 

Real estate investors who have never spent so hard on their money will be amazed at how quickly they lend hard money compared to banks. Hard money loans can provide 3-5 days of funding if needed, compared to the 30+ days it takes banks to raise funds. This rapid fundraising has helped many real estate investors who used to be in escrow just to get the same lender to withdraw or not deliver. This is the perfect situation for hard money lenders to get in. 

Hard money loans have few requirements:

It will need a few requirements, especially when compared to bank loans. They include borrowers with sufficient funds in the property, enough cash on hand for monthly payments, a Reasonable exit strategy, and adequate experience if necessary fewer requirements mean higher chances of loan approval. Banks have a long list of requirements that borrowers must meet to qualify for financing.

Banks also have a list of issues that will raise red flags and prevent them from considering borrowing to borrowers, such as recent foreclosures, short sales, loan modifications, and bankruptcy. Bad credit is another factor that prevents banks from lending to borrowers. 

Major money lenders are still able to lend. Hard money lenders can lend to troubled borrowers as long as the borrower has enough down payment or equity on the property. Borrowers are required to make agreed monthly payments and balloon payments at the end of the loan period.

In the case of a prospective borrower who wants to purchase a hard-earned primary residence through a private mortgage lender, the Borrowers can initially purchase the property with a lump sum and then work on any solutions or wait for the necessary amount. It’s time to clear the issue. When the problem is solved, Borrowers will be able to refinance their loans at lower costs with conventional lenders such as banks or credit unions.

Banks are also reluctant to provide home equity loans to self-employed borrowers or currently do not have the required 2-year work history in their current position. Borrowers may be ideal candidates for all aspects of the loan. 

Hard money loans provide financing for projects that cannot be financed elsewhere:

Hard money lenders offer so many loans that conventional lenders such as banks have no interest in financing. So investors can quickly make necessary repairs and improvements. In most cases, Real estate investors only need a 12-month loan. The 12-month term doesn’t apply to a bank’s business model. Banks want to borrow money over the long term and are willing to pay little interest over a long period of time.

There can be many problems with the property that can prevent the property from accepting a traditional bank loan. The issue could be related to the foundation, electricity, or water supply and could cause banks to consider the property uninhabitable and unable to finance it. Banks are highly risk-averse lenders and cannot think of loan situations outside of their strict lending criteria. The Hard money lenders will provide Hard money loans to the borrowers to buy the properties that have difficulty preventing them from qualifying for conventional bank loans. 

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Christophe Rude

Christophe Rude

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