Understanding The Advantages & Risks Associated with Hard Money Lending

Hard money loans actually refer to financing that is provided to you by non-institutional lenders. We know that there are numerous hard money lenders who are offering fast funding to you at extremely attractive interest rates. But it is your responsibility as the borrower to do a thorough background check regarding the lender’s business and reputation. However, your research would show that hard money lenders help you in providing a huge advantage in your quest for quick funds for funding your real estate investment plans and projects.

‘Hard money lender’ sounds like a scary term but you simply cannot undermine the pivotal role played by hard money lenders in offering financial assistance to you whenever the need arises. They are not to be compared to predatory lenders such as paycheck advance stores and credit card companies. They perform a crucial function for borrowers, the lenders and investors in realizing healthy returns.

Hard money loans generally are utilized in hardcore real estate investing. Conventional lenders, like banks and such other financial institutions, actually are not at all comfortable approving loans for risky investments. They are definitely keener on lending only on stable investments as they feel there would be a better probability of getting the loan repaid on time. Therefore, when an investor is interested in buying a distressed property, he would have very limited choices in terms of finding funding. We understand that those real estate investors that are interested in quick property flips and gut rehab usually depend on hard money loans.

Some real estate investors may be using hard money loans when they are interested in buying income properties. They would be using the hard money loan at the beginning and wait for the property to stabilize. These investors would be looking for a relatively more secure conventional mortgage once the property is actually stabilized. The traditional loan would be coming at a lower rate of interest and that would be used by real estate investors to pay off the hard money loan that comes at a high-interest rate.

ALSO READ  What are The Advantages One Could Acquire by Opting for a Used Car?

Hard money loans are a boon to people who are not able to secure a mortgage loan from a traditional financial institution or banks because of poor credit score. These real estate investors may be having a low credit score but they still have adequate equity in their real estate property to attract the hard money lenders and get their loan approval. This scenario is quite commonly observed when the property owner is actually facing foreclosure. Get in touch with reputed finance companies such as https://www.libertylending.com/ for fast and perfect lending solutions.

Advantages of Hard Money Loans

A Very Fast Process

As you are required to work with an individual lender or maximum a small group of hard money lenders, you would need to go through fewer formalities and you would need to cross fewer hurdles. In this context, the greatest advantage of hard money lending is that these lenders are simply not interested in your debts or credit score. They are only interested in the asset or property that is supposed to back the loan. They are keen on evaluating the property and analyzing the exact value of the asset. Depending on the competence of your lender, you could easily get a hard money loan as early as within a few days to maximum a few weeks post your loan request application. As a sharp contrast to this, you know that a conventional mortgage would be taking a few months for securing it.

More Amount Could Be Borrowed

With a conventional mortgage, you need to put down at least, 5 percent of the buying price. Banks would prefer 20 percent of your purchase price that would fetch you better loan terms. If you are putting down something less than 20%, you would be required to buy mortgage insurance that would be boosting the monthly mortgage payment you need to make. However, hard money lender could be ready to offer you 100% of your purchase price. Without any down payment, your only responsibility would be to pay the monthly interest and the origination fee until the loan is paid off in full.

ALSO READ  How Should You Consolidate Your Debt? The Benefits of Debt Consolidation Loan

Best Starting Point

Hard money loans may not be right for every investment or every investor. However, they prove to be a fantastic starting point. Just at the initial stages of your real estate investment business, you could use these loans for purchasing property even when you have a very little amount of your own. When you find a niche for yourself in the real estate investment sector, you would be eligible to obtain a conventional line of credit from traditional financial institutions and banks.

Build a Bond

You could build a robust relationship with your legit hard money lender. You could cement the bond by working with the same hard money lender for your next projects. If you are sincere and honor the agreement terms and pay back your loan amount timely or before its due, the hard money lender would surely be interested in working with you as not only your lending partner but also, as your financial advisor. Once you have a proven track record, it would be easier to convince the lender to loan you a higher percentage of the buying price or reduce substantially the origination fee, etc.

Zero Prepayment Penalties

According to https://medium.com, “If you obtain a loan from an established bank, you may be subjected to prepayment penalties if you pay off the loan prior to the maturation date. Most fix and flip lenders do not charge prepayment penalties, so if you come across extra cash and decide to pay off your loan before the due date, you can confidently do so without having to worry about being penalized for it.”

ALSO READ  Personal Funding for Projects: The Best Ways to Finance Your Passion

Some of the Risks Associated With Hard Money Loans

Losing the Asset or Property

As the loan is given against the value of your real estate property, if you fail to repay the loan, you would be losing the property.

High Interest Rate

One major drawback of hard money lending is that the loan comes at a relatively high rate of interest. The interest rates would be ranging between 10% and 20% on hard money loans. The lenders take full advantage of the situation as they realize that they are having the upper hand as you have very limited options of getting a traditional loan.

Conclusion

Investors in the real estate business who still have not used hard money loans should be amazed and thrilled at how fast the hard money loans would be approved and delivered as compared to conventional loans. This speedy funding process would help save many investment opportunities and deals for real estate investors.

Facebook Comments
Posts created 603

Related Posts

Begin typing your search term above and press enter to search. Press ESC to cancel.

Back To Top