3 Benefits of Utilizing a Hard Money Loan

by Susan Paige on June 10, 2019 · 0 comments

It’s usually frustrating when you lack the money to finance a good project plan. Real estate investments demand huge financing. So, even if you have some savings put aside, it may not be enough for your plans. In such a situation, the fastest way to raise funds is by borrowing. Already the traditional lenders are there to help you, but you must meet many requirements before they release any amount to you. For instance, you’ll have impressive credit scores and multiple streams of income before they’ll listen to you. Also, the process is stressful, rigorous, and after completing it all, they may not approve your loan. So, what’s the next option for you in San Diego, utilize the alternative which is a hard money loan. ‘

What is a hard money Loan

This is another tool that real estate investors use to finance their projects. Lenders of hard money loans are not usually after a borrowers’ credit standing or streams of income. Instead, their focus is on the collateral you’ll provide to back the loan. If the collateral has value, they’ll release the amount you need. The reason is that if you’re unable to pay after the term elapses, the hard money lender sells the collateral and recover his/her money.

Well, if you are starting in the real estate industry, you may not understand the working of these loans very well. However, many professional investors use them, and you can do so as well. So, let’s see why you should utilize it for your investment.

Benefits of Hard Money Loans

1.    Quick Approval and Funding

Remember we said earlier that the traditional lenders take time to approve and fund loans. Well, the lenders of hard money loans don’t need time to complete their business. Their speed is impressive and encouraging. Sometimes, all it takes to get your approval is one day. The areas of interest for the lender are:

  1.    The property value
  2.    Down payment amount
  3.    Equity of the borrower in the property
  4.    Borrower’s experience(if necessary)
  5.    Cash reserves for monthly payments
  6.    The exit strategy for the property.

Once the lender determines that all these points are okay, you’ll get the approval. As for the funding, it takes a minimum of 3 days and a maximum of 5 days to get your funds. This is awesome, right? Yes, it is far better than the 30+ days which banks use to fund a loan. Many professionals in the industry have utilized these loans to save their deals if a traditional lender disappoints them.

2.    Fewer Requirements

Another benefit of using a hard money loan is that the requirements you’ll fulfill are never stressful or difficult. What the lenders will ask for a few and easy to provide. Once you get your collateral, show that you have experience and cash to pay for the monthly amounts, you’re good.  Also, your equity and exit strategy must be impressive as well. These requirements are not hard to fulfill and once you do, you’re sure of the loan.

One of the reasons behind the delays in the traditional borrowing process is that their requirements are too many. When you get the long list of the requirements, you may even decide to back down from the project. Sometimes, these requirements increase every year, and many usually seem arbitrary. Apart from the requirements, there’re also some red flags that may disqualify a borrower from the beginning. Once the banks notice them, they’ll not even consider you at all for the loan. Some of the red flags include:

  1.    Short sales
  2.    Recent foreclosures
  3.    Bankruptcies
  4.    Bad credit
  5.    Loan modifications
  6.    Multiple mortgages.

All these are many reasons you may not get any loan from the bank to fund your real estate investment. However, hard money lenders don’t have time to require all these things. This is why many veterans in real estate go for hard money loans to avoid the hassles of bank lending.

3.    Funding Risky Investments

When it comes to risks, banks avoid it if they can. However, you can get a hard money loan no matter the type of property you want to buy. For instance, if you want to collect what the industry calls fix & flip loan, the banks will not accept. This type of loan is a short term loan which an investor receives to buy a property. Afterward, he/she repairs, updates, and sells the property off. Sometimes, investors may only need the loan for twelve months, and this is where the problem starts.  Banks don’t appreciate short term loans. Instead, they’ll give you the money and collect interest on it for a very long time. This is how these institutions operate, and there’s nothing you can do but to lean on the hard money loans.

Conclusion

Apart from these three mentioned above, there are other benefits to picking a hard money loan, such as flexible payments. So, instead of allowing the banks and other traditional lenders to deter you, go for the alternative.

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