Hard money loans are commonly used in commercial and residential lending. The lender supplies the funds following strict guidelines. In this type of loan, you need plenty of cash as the loan term comes to an end.
Credit is not important because private money lenders use real properties against the loan. The collateral could be the house you are purchasing or developing. Let’s find out what you can do with a hard money loan.
What deals are appropriate for hard money loans?
Hard money is not meant for all deals. If you have a good income, high credit score, and are not facing foreclosure, you may not need hard money loan on a primary residence. Conventional financing through your bank would be the right way to go. Only that you have to be patient with the prolonged approval process.
Hard money, which has its advantages, becomes necessary when banks are no longer an option. It also helps when you need quick cash in a short period of time. Here are the most common scenarios you need hard money lenders for:
- You need money to complete a construction project
- You have a fix and flip deal
- When purchasing land
- You need to act quickly in a real estate investment opportunity
- You have credit problems
Who needs hard money loans?
Are you an investor looking to purchase a distressed property? You could be facing limited financing options. Maybe you want a quick house flip or a gut rehab.
Whether you are buying an income property or constructing a new commercial building, you may need a hard money loan until your property stabilizes. Thereafter, you can refinance to a traditional loan at a lower rate and pay off your hard money loan.
Lastly, you can use hard cash money if you are unable to acquire a mortgage from a bank because of poor credit rating. Your credit history may not be pleasant in the eyes of a banker but your home equity can have a private lender interested in offering a loan.
The advantage of getting a hard money loan for home purchases
The greatest benefit is that the lender funds your loan quickly. It can actually be funded in one week, two days, or the same day. This is hardly the case with bank loans that take 30 to 45 days before they are approved.
This is significant merit for a real estate investor. If you are trying to buy a property with competing bids, you need to act fast. A quick close from a hard money lender can win the seller’s attention. Then you will be in a position to beat other buyers who have opted for conventional financing that’s often slow.
Life is unpredictable and things can turn out unexpected. Credit failures, foreclosures, and short sales are common challenges in real estate. Perhaps you started a new business and the bank has denied you a loan because you seem to be a risky borrower.
Private lenders can look past these obstacles so long as you have equity invested in a property. You will enjoy the flexibility and speed of hard cash money. It can be your perfect leverage today to escape a financial predicament when you don’t have enough funds for a project.