Getting conventional financing from your bank for your real estate project may not be an easy process. This is because getting traditional loans from a bank or unions normally takes a long time and depends on the borrower’s credit score. However, a good credit score and a healthy income are not an assurance you will get the loan. Hard money lenders are a great option for people who have been denied conventional financing or need urgent financing for a real estate project. Keep on reading to learn all you need to know about hard money loans.
What Are Hard Money Loans?
Hard money loans refer to short-term loans normally used by real estate investors which they secure using their real estate property. These loans involve monthly payments of interest and a final principal balloon payment. These loans are funded by private investors who lend the money based on the borrower’s equity other than his/her credit score. For people who just joined the real estate market and don’t have enough capital, hard money loans may be of great advantage to them.
Situations Where Hard Money Loans Can Be Used
Hard money loans are not appropriate for many deals. Therefore, if the borrower has enough time to wait for the lengthy bank approval process and has a good credit score, then conventional financing from a bank is the best option for them.
Some situations where hard money loans may be useful loans include:
- When a real estate investor needs urgent financing
- When one has a poor credit score
- Flips and fix
- Construction loans
- Land loans
How Does the Loan Work?
Hard money lenders are basically concerned with the value of the property the borrower intends to use as collateral rather than the borrower’s credit score. Before issuing the loan, the lenders also consider how the borrower plans to pay off their loan and any plans they may have for their property.
Interest Rates and Points Used for Hard Money Lending
The interest rates that hard money lenders use vary from one lender to another, and different regions also show varying interest rates among money lenders because of factors such as competition, which may lower the interest rates. Typically, hard money loans attract high-interest rates because of the high risks the lenders take. On average, interest for these loans range from 10 to 15% depending on the lender, region, and risks involved
Qualifications for a Hard Money Loan
In most cases, a borrower can get a loan using any real estate property as collateral. Since most money lenders are less concerned with the borrower’s credit history, the value of the equity that the borrower intends to use as collateral plays an important role during the processing of the loan.
Although the amount of equity plays an important role in processing a hard money loan, the borrower must also have enough capital to pay for the loan’s interest.
The borrower must also show a willingness to repay the loan by presenting a reasonable plan on how he/she intends to repay the loan. Hard money lending firms must follow state and feral laws that bar them from lending to borrowers who are not in a situation to repay the loan.
Properties Hard Money Lenders Lend On?
Although most money hard lenders can lend money on most properties, some lenders may specialize in a specific niche due to lack of knowledge on some real estate properties, among other reasons. The main properties that can secure a hard money loan include;
- Single-family residential property
- Industrial property
- Commercial property
- Multi-family residential property
Benefits of Hard Money Loans
- Adjustable repayment schedules
- Fast loan processing
- Accessible to people denied conventional financing but have equity
- Don’t require a good credit score or financial disclosures
- Most appropriate for short-term funding
How to Find the Right Money Lender
Finding the right money lender is not always an easy task. An easy way you can use to find the right lender is to inquire with the local real estate agent groups and ask for referrals from real estate agents in your town.
Another way that may help you find the right money lender is to search on the Internet for local hard money lenders. Once you have a list of money lenders, you can evaluate and contact them to establish the most suitable money lender for your needs.
Although high-interest rates that come with hard loans may scare you initially, the benefits by far outweigh the extra costs. This is because having cash on hand can give you an upper hand in the competitive real estate market. Hard money loans enable real estate investors to have more transactions which make more profits with a small capital.
If you are considering getting an affordable hard money loan for your real estate financing, AS-IS Loans is the best option for you. AS-IS Loans have been offering commercial and business loans, among others, for over 30 years. Contact us today to book your consultation appointment.