Hard money lenders provide a swift and simple method for securing financing for real estate purchases. They’re an ideal solution for house flippers, developers and rehabbers who require temporary relief until they can secure more traditional sources of funding.
Due to being less regulated than mortgages or auto loans, they come with some disadvantages. These include high interest rates, fees and short loan terms.
Collateral
If you’re interested in real estate investing but don’t qualify for a traditional loan, hard money lenders may be able to assist with funding your projects. They offer asset-based or bridge loans that enable investors to purchase property quickly.
Many borrowers find hard money loans to be faster and more flexible than other loan options. This financing solution can be especially advantageous for those with bad credit or who require property that traditional mortgage lenders won’t finance.
Collateral offered by hard money lenders varies, but usually includes real estate. Other assets can also be used as security such as vehicles or machinery; however, these could be taken away if you fail to repay the loan on schedule.
Interest Rates
Hard money lenders provide short-term funding for real estate projects. They’re typically used by house flippers or investors who require quick access to capital.
Interest rates on these loans tend to be higher than traditional mortgages, due to the lender’s risk level. Furthermore, they usually feature shorter repayment periods and lower loan-to-value (LTV) ratios.
Borrowers may need a substantial down payment in order to qualify for these loans, and they must meet certain requirements that differ from those required for conventional mortgages.
Some hard money lenders charge origination fees or points. These costs vary by deal and can range anywhere from 1% to 5% of the loan amount.
Fees
Hard money lenders provide a unique form of financing that enables real estate investors to quickly purchase, renovate and resell property at a profit. However, these loans come with certain fees you should be aware of before applying for one.
These fees include origination, closing, and underwriting costs that can be as much as 10 percentage points higher than traditional loans.
They may charge a pre-penalty fee if you pay off your loan before its term ends, in order to guarantee they don’t miss out on any profits by asking that you hold onto the property for an agreed upon amount of time. This fee helps ensure you don’t skip out on profits as they want to ensure you keep ownership of the property during that period.
To locate a hard money lender, do your due diligence and confirm they are legitimate. After that, you can begin talking to them about your needs and how they may assist you.
Time Frame
If your investment opportunity requires quick funding, a hard money lender may be your ideal solution. They provide loans within just a few days – far quicker than traditional bank loans can provide.
Investors with multiple rental property portfolios will find this type of financing particularly advantageous. They can use the extra funds for renovations or to purchase a new property, enabling them to increase their portfolio size.
Furthermore, hard money lenders offer a more accommodating loan application process than conventional mortgages. This means you may be eligible for a hard money loan even with a credit score below average.
Hard money lenders take a greater level of risk than traditional lenders do, making them more costly for borrowers. That is why they charge higher interest rates and have shorter loan terms compared to traditional commercial mortgages.
