Hard money loans refer to loans provided by non-institutional lenders. There are many hard money lenders that offer fast funding at attractive interest rates.
As a borrower, you will need to do a thorough investigation on the lender’s reputation and business, but as you do your research you will find that a hard money lender can provide a great advantage in your quest to fund your real estate investment project.
The benefits of a hard money loan
- Quick approvals: Without a doubt, one of the main advantages of a hard money loan is the fact that investors can secure pre-approval in a day or two, even if they have submitted a handful of documents requested by the lender. Hard money lenders mainly focus on whether the market value of the asset is good and that the borrower’s equity is at least 20%. Financing can take less than a week compared to a normal loan which can take a month or more. When inquiring about hard money lenders, the main question to ask is how quickly they can provide funding.
- Flexible payments: With a private lender, you will have more freedom to create a customized repayment plan. With a large financial institution, you will not have this freedom. Instead, you have to accept the payment terms set by the bank. However, with a private lender, you can discuss and come up with a mutually agreed payment plan that you think is right for you.
- Less Requirements: When applying for a loan from a general financial institution, you will be expected to meet a number of hard-set requirements such as income history, experience, etc. It’s no secret that bank approvals can be a cumbersome process. It is possible that you will not be burdened with so many necessities by a hard money lender. As long as you have high-value assets with at least a 20% equity stake, there are good chances that you will qualify for a loan.
- Zero prepayment penalty: If you get a loan from an established bank, you may be subject to a prepayment penalty if you repay the loan before the maturity date. Most fix and flip lenders do not charge a prepayment penalty, so if you receive extra cash and decide to repay your loan before the due date, you can do so confidently without having to worry about penalties.
- Credit history is not a big problem: In the case of large lending institutions, your credit history can have a huge impact on whether or not you get a loan. With private lenders, less emphasis is placed on a weak credit history. The reason for this is the approval of a private lender’s base loan on the value of the property, borrower’s equity, etc. As long as you meet these criteria, you have a good chance of getting funding.
An added bonus of getting a loan from a hard money lender is that more properties in the community are renovated, property values are expected to increase, and the quality of the neighborhood improves.