Reddit Personal Finance In Order To Get The Lowest Leaset How Hard Money Loans Can Benefit You

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How Hard Money Loans Can Benefit You

Advantages of Hard Money Loans

It offers many benefits that are not usually available through large banks or lending institutions. Some of the benefits include:

  • Minimum conditions: In order to avail, the borrower needs to fulfill a short list of criteria while the bank has several set-in-stone conditions that need to be met. This may include income history, credit report, etc. The whole process can get out of hand and the borrower, ultimately, may not be approved in the end. On the contrary, these loans are quite simple and straightforward. If the hard money lender assesses that the borrower’s target real estate investment is an excellent value and the borrower has at least 20% equity to put into the deal, it is likely that the investor will qualify.

  • Fast loan approvals: You can get it approved much faster than conventional banks or financial institutions – which may take at least 3-4 weeks. In many cases, a borrower can receive approval and financing within a week – especially if the requested documents are presented on time. The main reason hard money lenders are able to approve loans quickly is the short list of required documents and the small size of the lending organization that does not have to deal with the corporate red tape that banks do.

  • Be generous with credit history: It will also be more generous with your credit history. If you apply for a loan from a top financial institution, one of the main factors they check is your credit. If the borrower does not fit within the bank’s strict “credit box,” the chances of qualifying for a loan are significantly reduced. In the case of hard money lenders, credit history doesn’t matter as much as the value of the property and the borrower’s equity — or “skin in the game.” As long as both meet the lender’s expectations, you have a good chance of getting a loan.

  • No Prepayment Penalty: Another important advantage is the absence of prepayment penalties. If you borrow from a large financial institution, you may be charged a prepayment penalty if you pay off the loan before the maturity date. You can avoid these charges by opting for hard money loans. It’s not hard to find a hard money lender willing to lend you money without prepayment penalties baked into the term sheet.

Although hard money loans offer the aforementioned advantages, they are not entirely without drawbacks. Some of the disadvantages of hard money loans include:

  • High interest rates. Since the lender takes on more risk by lending to an unfinanced property and a borrower who doesn’t qualify for a bank loan, a higher rate of interest is usually in play. This is an important factor to keep in mind while deciding whether or not to opt for a hard money loan.

  • Short term loans. If you are looking for long-term funding, you may find it difficult to get a hard money loan. If you need financing for longer than 12-18 months, a traditional bank may be a better bet.

If your real estate investment is located near you, applying for it can be very easy because you will find many lenders willing to offer them. However, before jumping the gun and applying from all available lenders, keep in mind that you should spend some time researching them to find the best lender.

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