What You Need to Know About Hard Money Loans

Any real estate professional would agree that dealing in the industry can be unpredictable. Potentially, investors can do very well and succeed in a lucrative business. However, when the market is stagnant, times can be tough for real estate professions. If you’re interested in entering this business, it’s important to understand the type of financial funding available to you. Whether you want to flip a home or purchase land for new construction, hard money loans are an intriguing option. Here are some facts to be aware of when it comes to this lending method.

Credit Isn’t as Critical

To obtain a conventional loan, a prospective buyer must have a good credit score if he or she hopes to secure a favorable rate and terms. However, with hard money loans, private investors won’t worry so much about one’s credit score. Instead, the more critical piece is the collateral the real estate professional is willing and able to put up. These loans are typically tied to a piece of real estate.

These are Short-Term Loans

You can forget about a 30- or even 15-year loan as you’d see with a conventional or FHA loan. Hard money loans have a repayment term of as little as 12 months. You might be able to find an investor willing to grant you a two- or three-year term, but this is less common.

Interest Rates are High

Because investors will typically disregard credit scores with this type of loan, they will assign high interest rates. Usually, you can expect to see rates of 10 percent or higher—sometimes exceeding 15 percent. This is a tradeoff for being able to secure the loan you need even if your credit is poor.

The Process is Swift

One frustration people often have with getting conventional loans or similar types of mortgage loans is that the approval process can drag on for a month of more. With a seemingly endless amount of paperwork and documentation, the loan approval can be agonizingly long. However, when you seek hard money loans, you’ll be thrilled to know that approval and funding may come in as little as one week.

Do Your Research to Find a Lender

Lenders with this type of loan don’t come in the traditional form such as banks or credit unions. Research wisely and thoroughly to find a private lender with a good track record.

Using this method to obtain funding or your real estate purchase can be easy and effective. Keep these tips in mind as you look for lenders.

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