Hard money loans refer to financing provided by non-institutional lenders. There are many hard money lenders who offer quick financing at attractive interest rates.
As a borrower, you will need to do a thorough check of the lender’s business and reputation, but as you do your research, you will discover that hard money lenders can give you a huge advantage in your quest to finance your real estate investment project.
Benefits of hard money loans
Faster approvals – Without a doubt, one of the main benefits of a hard money loan is the fact that investors can get pre-approved in a day or two, given that they have submitted the few documents that the lender has requested . Hard money lenders focus primarily on whether the asset itself has a good market value and whether the borrower’s equity is at least 20%. Financing can be done in less than a week, compared to normal loans that can take a month or even longer. When asking about hard money lenders, a key question is how fast they can finance.
Flexible payments – With a private lender, you will have more freedom to create a personalized payment plan. With a large financial institution, you will not have this freedom. Instead, you must accept the payment terms established by the bank. However, with a private lender, you can discuss and come up with a mutually agreeable repayment plan that you think is right for you.
Fewer requirements: When applying for a loan from a normal financial institution, you are expected to meet many set requirements such as income history, experience, etc. It’s no secret that bank approvals can become a cumbersome process. A hard money lender may not burden you with as many requirements. As long as you have a high-value asset with at least a 20% equity interest, there is a good chance that you will qualify for the loan.
Zero prepayment penalties – If you borrow from an established bank, you may be subject to prepayment penalties if you pay off the loan before the due date. Most fixed and reversible lenders don’t charge prepayment penalties, so if you find extra cash and decide to cancel your loan before the due date, you can do so with confidence without worrying about being penalized for it.
Credit history is not a big deal: For large lenders, your credit history can have a big impact on whether or not you get a loan. With private lenders, there is less emphasis on weak credit. This is because a private lender bases the approval of the loan on the value of the property, the capital of the borrower, etc. As long as you meet these criteria, you have a good chance of getting funds.
An additional benefit of obtaining a loan from a hard money lender is that as more properties are renovated in the community, the value of the properties will increase and the quality of the neighborhood will improve.