Are you looking for a loan option to finance your home or investment property? If so, then a hard money loan might be the perfect fit.
When it comes to financing a real estate deal, most people rely on traditional bank loans. But for some situations, banks may not be the optimal solution when trying to finance a property.
But what is a hard money loan? How does it work? And do you need one?
Read to learn about hard money loans and its benefits.
What Are Hard Money Loans?
A hard money loan is an asset-based loan that provides funds based on collateral. It’s not based on the creditworthiness of the borrower. Because these loans are riskier for the lender, they typically come with higher interest rates and shorter terms than traditional loans.
Hard money loans are an alternative financing option for real estate transactions. They are not funded by banks or credit unions but rather by private investors who want to invest in cash holdings.
The lender will appraise your property and determine how much they’re willing to lend you based on that value.
This makes them different from traditional bank loans, which typically fund large commercial projects rather than smaller residential ones where hard money loans tend to work best.
How Does a Hard Money Loan Work?
Hard money lenders make fast decisions and close deals quickly. It often goes through within two to three days. However, they’re less likely to meet your full borrowing needs than traditional banks and lending institutions.
The loan amount is 80 to 90% of the current property market value with a 12 to 24-month term. You’ll need to have a healthy chunk of equity in the property to qualify for a hard money loan.
Hard money loans rates are higher than traditional financing, but since the loan is secured by real estate, the risk to the lender is lower. Yet, borrowers must prove they can afford the monthly payments even if the property doesn’t generate rental income immediately.
Do I Need a Hard Money Loan?
While banks are often the source of traditional financing for residential or commercial properties, there are cases where they won’t work out as an option.
For instance, if a potential borrower has bad credit, it may be difficult to get a bank loan for a project. And even if a person has great credit, banks may still not approve them for large sums of cash. That’s when hard money loans come in handy.
How to Get a Hard Money Loan
If you need a hard money loan or think it’s an option for you, the next step is to find a lender hard money. Lenders will be more likely to provide loans if their potential borrowers have good credit scores and positive cash flow from documented income sources.
Ask your lender the documentation they’ll need from you since most lenders demand different information.
Also, you must understand that there’s no penalty for pre-payment. Thus, if you feel like paying off your loan early, don’t hesitate to mention it during negotiations.
Sometimes, finding a hard money loan may require “pre-qualifying.” You’ll go for conventional financing options first and then switch to hard money when those options cannot materialize.
Use the following steps in the hard loan application:
Gather your documentation: This will include things like your tax returns, W-2s, bank statements, and other financial information.
Find a lender: There are many hard money lenders out there, so do your research to find the best one for you.
Contact the lender: Contact them to discuss your options and get the process started once you’ve found a lender you’re interested in.
Complete the application: Most lenders will have an online application that you can complete in minutes.
Wait for approval: Once you’ve submitted your application, the lender will review it and let you know if you’ve been approved.
Sign the loan agreement: Once you’re approved, the lender will send you a loan agreement to sign.
Receive your funds: After you’ve signed the agreement and sent it back to the lender, they will wire the funds directly into your bank account.
Top 3 Advantages of Hard Money Loans
Are you wondering if hard loan financing is your best option? There are several reasons why someone might want to consider getting a hard money loan:
1. Speed and Efficiency
One of the top benefits of a hard money loan is the speed at which you can get the money. A traditional bank loan could take weeks or even months to get approved and receive the funds. But with a hard money loan, you can often get approved within two to three days.
Their lending criteria are more flexible since their regulations don’t bog them down like traditional banks. For example, while banks may require borrowers to use the property they’re borrowing against as collateral, investors who offer hard money loans are more willing to be flexible with their terms.
2. Less Stringent Requirements
Unlike traditional banks, hard money lenders aren’t interested in your credit score or other financial histories. They’re more concerned with the property’s current market value you’re looking to borrow against.
Another benefit of a hard money loan is that the paperwork is much less than what you would have to go through with a traditional loan.
3. Ease of Qualification
It’s easier to qualify for a hard money loan than other bank loans. The investors offering these loans are looking for opportunities to invest their money. They aren’t deeply concerned about things like credit score or debt-to-income ratio.
Hard money loans are often the best solution when you need funds fast. It only takes 24 hours for lenders to approve these types of loans, which is much faster than most traditional lending institutions.
You also stand to gain potential tax benefits. The interest payments on these loans are often tax-deductible.
While there are advantages to getting a hard money loan, it’s important to remember that they’re not right for every situation. If you’re not sure whether a hard money loan is right for you, be sure to consult with a qualified financial advisor or a hand money lender near me.
Talk to Us for Convenient Hard Money Loans
Have you identified a potential property worth investing in, but you don’t have the cash or good credit to pull the deal through? Stonecrest Financial is your trusted solution whether you’re buying property or want to develop it.
Since 1965, we’ve partnered with thousands of investors to ensure they get financing at the right time. Don’t let a good deal pass you by for lack of financing. Contact us to get the hard money loans near me.