If you are someone researching ‘Hard Money Loans’ you probably want to fund your house flipping, or other real estate financing deals. The term ‘hard money literally means financing for a hard asset, in this case, real estate or property deals.
The term hard money loans are often used interchangeably with Bridge Loans or STABBL (Short Term Asset-Backed Bridge Loans). According to leading financial experts, hard money loans are often secured for short-term financing.
As the name suggests, such loans are always secured by real estate assets. When it comes to such loans, traditional financial institutions like banks are not very helpful. This is because they usually do not offer hard money loans.
In this article, we are going to understand how you can invest in property deals with hard money loans. Additionally, we are going to look at some of the benefits of hard money loans and how they can be helpful for certain types of investors and real estate businessmen.
Hard Money Loans for Real Estate Investing: What you need to know
If you are a real estate developer, or in the business of flipping houses quickly, you know the importance of fast and easy financing. Most traditional institutions have long-drawn processes that involve a lot of time and detailed paperwork.
Most hard money loans are secured to renovate an existing property, either by the homeowner or by a businessman looking to do renovation work and flip the house for a profit. Most banks are not in favor of lending for distressed properties.
This is why hard money loans are offered by private lenders in high-value real estate markets such as Texas. There are two major things that you should know about hard money loans and their uses in real estate investments-
- Such loans are often provided for short periods. This means that you have a limited repayment period, which is often a few months.
- The loans usually imply a higher rate of interest than traditional mortgages that banks offer. Since the goal is to flip the house for a profit, higher interest rates do not matter.
List of Three Major Benefits of Hard Money Loans for Real Estate Investing
In this section, we are going to list down the three major benefits of why hard money loans are so sought-after in the real estate renovation and purchase industry-
- Fast Processing and Quick Turnaround Times-
Anyone who has ever applied for a traditional mortgage knows the extent of the paperwork they have to go through. Saving a few bucks on the interest rates does not compensate for the insane time delays, stressful levels of verification, and personal guarantees. As against this, hard money loans are famous for their easy processing, faster turnaround times, and minimal paperwork. In fact, you can secure such financial help within a matter of two to three days!
2. Flexible and Convenient Terms and Conditions-
Traditional lending institutions do not have or offer customized repayment plans. They have a set standard, which they are not willing to deviate from. This makes it difficult for certain types of individuals or investors who have their own intrinsic contexts. With hard money loans, you get a host of personalization options. You can think about how long you want the loan and set the repayment terms and interest amount accordingly. The flexibility is beneficial.
3. The Creditworthiness of the Borrower is not Judged-
Traditional loans that are offered by banks and other financial institutions often take into account the creditworthiness factor. On the other hand, hard money loans do not do the same. They consider the value of the property and offer a loan against the same. You secure your property with the private lender offering hard money loans. Once you repay the amount, you get complete ownership of the property. For many individuals, this overcomes a problem.
The Bottom Line
Real estate deals are characterized by instant decisions and quick turnaround times. With hard money loans, you can get a house, renovate the same, flip it and turn over a handsome profit, all within an unimaginable quick timeframe.
Make sure that you are researching the private lender from who you are availing the hard money loan. Read online reviews and ratings to assess the credibility of the lender. You should work with reputed and well-established private lenders all the time.
If you have any other questions or doubts on hard money loans that you would like us to address, please let us know in the comments below.