How Hard Money Loans Can Benefit You
The advantages of hard money loans
It offers immense benefits that are not normally available through big banks or credit institutions. Some of the benefits include:
Minimum conditions: To obtain, a borrower must meet a short list of criteria, while a bank has many fixed conditions that must be met. This may include income history, credit report, etc. The entire process can take a long time, and ultimately the borrower may not even be approved at 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 invest in the deal, the investor will likely qualify.
Fast Loan Approvals – You can get approved much faster than traditional banks or financial institutions which can 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 submitted in a timely manner. The main reason that hard money lenders can approve loans quickly is the short list of required documents and the smaller size of the lender’s organization that doesn’t have to deal with the corporate red tape that banks do.
Forgiving on credit: You’ll also be more forgiving on your credit. If you apply for loans from major financial institutions, one of the main factors they will check is your credit. If a borrower does not fit within the strict “credit box” of a bank, the chances of qualifying for the loan are significantly reduced. In the case of hard money lenders, credit history does not matter as much as asset value and borrower’s equity, or “skin in the game.” As long as you both meet the lender’s expectations, you have a good chance of getting the loan.
No Prepayment Penalties: Another important benefit is the absence of prepayment penalties. If you get a loan from a large financial institution, you will most likely receive a prepayment penalty if you pay off the loan before the due date. You can avoid these fees by opting for hard money loans. It’s not hard to find a hard money lender who is willing to lend you money with no prepayment penalties included in the term sheet.
Although hard money loans offer the advantages mentioned above, they are not completely without their drawbacks. Some of the disadvantages of hard money loans include:
High interest rates. Since the lender assumes additional risk when lending on property that is not bank-financed and on a borrower who would not qualify for a bank loan, a higher interest rate is generally at stake. This is an important factor to consider when deciding whether or not to opt for a hard money loan.
Short term loan. If you’re looking for long-term financing, you may find it difficult to get a hard money loan. A conventional bank may be a better option if you need financing for more than 12 to 18 months.
If your real estate investment is close to your location then it can be much easier to apply as you will find many lenders willing to offer it. However, before you rush and apply for all available lenders, keep in mind that you should spend some time researching them to find the best lender.