If you’re considering investing in real estate, a hard money loan may be an invaluable resource to consider. If you’ve never heard of a hard money loan, this article will provide clarity and a wealth of information. Simply put, hard money loans are a great option for those who need collateral based funding, quickly.
Hard money loans are typically funded by a private investor or a group of investors. This is different from private equity funding in the respect that the investor seeks only to earn interest on the transaction. As with all mortgages, the investor would seek to sell the property to recover their losses in the case of a loan default.
The lenders are more interested in the real property than the ability to actually repay the loan. This is beneficial to those who need quick settlements, and don’t want to endure a lengthy underwriting process. Assets, credit, and income are not major concerns to hard money lenders. The lender is able to focus solely on the property by reducing their exposure to a lengthier risk. The loan term is typically very short, with an average length of no longer than a few years.
Another major factor to consider is that non-traditional borrowers may be able to find an easier approval process with hard money loans. Foreign-nationals and those with unconventional sources of income are prime examples of consumers who could be helped in this scenario. Those with non-liquid assets and a significant amount of real estate holdings are also great candidates for hard money lenders.
While hard money loans are typically easier to obtain, they may not be beneficial to some borrowers. Those who are planning on retaining a property for more than a few years may find conventional financing to be a better option. Another factor to consider is that hard money loan companies will most likely require a significant down payment to secure financing. Those who are looking to solely profit from the purchase and resale of a property would be served well by hard money loans.
Those who need a property, however, have poor credit may seek this type of loan to secure a property. An important consideration is that these clients must refinance at a later date to avoid having to satisfy the loan all at once. This is commonly known as a “balloon” mortgage payment.
In short, hard money loans are a great source of funding for many borrowers. They provide much greater flexibility than traditional loans. Those who are considering rehabilitating homes for resale are prime candidates for this type of financing. For those who are simply seeking to purchase a primary residence; hard money loans are able to provide a short-term solution for consumers who anticipate being able to refinance under better terms in the future.
There are many factors to consider when selecting the best financing for your situation. A great place to start would be to research the different types of loans available, online. Financing professionals are also able to assist in helping you make an informed and intelligent decision, as well.