How hard money loans can benefit you

The benefits of hard money loans

It offers immense benefits that are not usually available at major banks or lending institutions. Some of the benefits include:

• Minimum Conditions: To qualify, 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 whole process may become lengthy and the borrower, in the end, may not even be approved at the end. On the other hand, these loans are quite simple and straightforward. If the hard money lender assesses that a borrower’s target real estate investment is of excellent value and the borrower has at least 20% equity to invest in the deal, it is likely that the investor will qualify.

• Fast Loan Approvals: You can get it 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 funding within a week – especially if the requested documents are submitted in a timely manner. The main reason why hard money lenders are able to approve loans quickly is because of the short list of documents required and the small size of the lender’s organization which does not have to deal with corporate bureaucracy. What are the banks doing?

• Lenient with credit history: It will also be more lenient with your credit history. If you apply for a loan from the best financial institutions, one of the main factors they will check is your credit. If a borrower does not fit into a bank’s strict “credit box”, the chances of qualifying for the loan become significantly lower. In the case of hard money lenders, credit history doesn’t matter as much as the value of the asset and the borrower’s equity – or “skin in the game”. As long as both meet the lender’s expectations, you have a good chance of getting the loan.

• No prepayment penalties: Another important advantage is the absence of prepayment penalties. If you take out a loan from a major financial institution, you will most likely be hit with a prepayment penalty if you repay 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 willing to lend you money without prepayment penalties built into the term sheet.

Even though hard money loans offer the advantages mentioned above, they are not entirely without disadvantages. Some of the disadvantages of hard money loans include:

• Higher interest rates. Since the lender is taking on additional risk by lending against a property that is not bankable and on a borrower who would not qualify for a bank loan, a higher interest rate is usually at stake. This is an important factor to keep in mind when deciding whether or not to go for a hard money loan.

• Short term loan. If you are looking for long-term financing, you may find it difficult to secure a hard money loan. A conventional bank may be a better choice if you need financing for more than 12 to 18 months.

If your real estate investment is near you, it may be much easier to apply because you will find many lenders ready to offer them. However, before taking the leap and applying to all available lenders, keep in mind that you should spend some time researching them in order to find the best lender.