Hard money loans refer to financing provided by non-institutional lenders. There are many hard money lenders that offer quick financing at attractive interest rates.
As a borrower, you will need to thoroughly check the lender’s reputation and activities, but as you research, you will find that hard money lenders can provide you with a great advantage in your quest to finance your real estate investment project.
Benefits of Hard Money Loans
- Faster Approvals: Without a doubt, one of the main advantages of a hard money loan is the fact that investors can get pre-approval within a day or two, given that they have submitted the handful of documents requested by the lender. Hard money lenders mainly focus on whether the asset itself has a good market value and whether the borrower’s equity is at least 20%. Funding can take place in less than a week, compared to normal loans which can take a month or even longer. When researching hard money lenders, a key question to ask is how quickly they can fund.
- Flexible payments: With a private lender, you’ll have more freedom to create a personalized repayment plan. With a large financial institution, you won’t have that freedom. Instead, you will have to agree to the payment terms set by the bank. However, with a private lender, you can discuss and come to a mutually agreeable repayment plan that you think is right for you.
- Fewer requirements: When applying for a loan from a normal financial institution, you will have to meet many strict requirements, such as income history, experience, etc. It’s no secret that bank approvals can become a tedious process. Chances are you won’t be burdened with so many demands by a hard money lender. As long as you have a high-value asset with at least a 20% equity stake, there’s a good chance you’ll qualify for the loan.
- No prepayment penalties: If you obtain a loan from an established bank, you may be subject to prepayment penalties if you repay the loan before the due date. Most fixed and flip lenders don’t charge prepayment penalties, so if you come across extra money and decide to pay off your loan before the due date, you can do so with confidence without having to worry about being penalized for it.
- Credit history isn’t a big deal: In the case of big lending institutions, your credit history can have a huge impact on whether or not you get a loan. With private lenders, there is less emphasis on a poor credit history. This is because a private lender bases loan approval on the value of the property, the net worth of the borrower, etc. As long as you meet these criteria, you have a good chance of being funded.
An added benefit of getting a loan from a strong money lender is that as more and more properties are renovated in the community, property values are bound to increase and the quality of the neighborhood improves.