Experienced real estate investors know all the fine points of hard money loans, but for novice investors, they usually need to learn more about it so that they make the right decision for their projects. A hard money lender gives out hard money loans, which are financing tools mostly used by real estate investors. It is a short-term loan that usually lasts between 12 months to 2 years. The loans are generally considered for last resort or short term reasons, and are given out by companies or individuals. House flippers will also utilize this financing tool. If they are thinking ‘I need to sell my house fast after the renovations’, a hard money loan helps them get in and get out quickly. There are three main advantages of working with a hard money lender over a traditional bank.
⦁ Speed
With hard money loans, one can expect the approval and funding to happen quickly. This is one of the main advantages of going to a hard money lender. Most of the time, the approval for a hard money loan happens under a day after checking if the requirements have been met. These usually include the property, the borrower’s experience and cash reserves, the down-payment or equity of the borrower and the exit-strategy. If everything checks out, the loan is approved immediately.
After approval, the funding usually takes between three to five days, which is considerably less than the thirty days it takes for traditional banks to do the same. New or novice investors typically marvel at the speed it takes to provide funding for a project. This is why hard money lenders are popular among investors that need it urgently, especially when their original lender is unable to deliver or pulls out suddenly. The hard money lender can step in and provide the funding within a week.
⦁ Versatility and Flexibility
Hard money lenders are flexible when it comes to the types of projects they finance. You can even get funding for some projects that cannot be funded in other places. Investors can use hard money loans for residential and commercial properties, and in some cases, they give out construction loans. Apart from these standard loans, they also provide loans that conventional financial institutions won’t be interested in.
When it comes to loans, traditional banks are risk-averse lenders, and so they don’t consider any loans that go outside their lending criteria, which is rather strict. This is why they can’t give out 12-month loans like the fix and flip loan, but prefer to lend for a longer time period. Hard money lenders will provide the investor with the loan for a property that has issues with a traditional bank loan.
⦁ Few Requirements
Unlike banks with their strict lending criteria, hard money lenders have fewer requirements which can also be flexible in some cases. Some of the conditions that hard money lenders deem important are the equity of the borrower on the property, an exit strategy, cash at hand and ample experience. Because of their fewer requirements, the likelihood of a loan being approved increases. Banks have a very long list of requirements which seems to grow every year and become stricter.
Hard money lenders do not consider some other requirements that a bank will consider. These include foreclosures, bankruptcies, bad credit, short sales and modifications to the loans. But, for a hard money lender, as long as the equity or down-payment is enough, other issues like bad credit and how many mortgages or recent foreclosures the borrower has is not always essential.
With these benefits, working with a trusted hard money lender as a real estate investor is a good idea. You have a higher chance of getting your loans approved, within a week, and it doesn’t matter the type of loan you want to get. You can easily finance your projects and make a profit with a hard money lender.
Alex Capozzolo is the owner of the Brotherly Love Real Estate blog and a content writer for the real estate industry. He is focused on helping people through one of the most important investment decisions of their lifetime by seamlessly providing fast, honest and professional real estate services.
