There are many types of loans you can apply for, and each one serves a specific purpose and enables you to complete various projects. But what about hard money loans? What are they, and how can you benefit from them? Let’s look at what you need to know about hard money loans.
What Is a Hard Money Loan?
This specific type of loan is considered short-term and does not come from large lenders like banks. Instead, financial individuals offer hard money loans, accepting property or other essential assets as collateral.
For example, if one needs a hard money loan, they might offer a property up for collateral to receive the loan. However, if that person defaults on their payments, the lender can take ownership over the asset to recover their financial losses.
Unfortunately, hard money loans have a bad reputation for being “shady” or “untrustworthy” because of how movies and TV portray the process. But lenders that are portrayed in media are not allowed to operate in the financial market and can be quite helpful in specific situations.
Interest Rates and Speed
Many traditional lending services will complete a rigorous process to ensure you’re eligible for the loan you’re applying for. On the contrary, hard money lenders may quickly examine your credit score and financial history, but what they approve you for depends on the value of the asset you offer as collateral.
Therefore, the interest rate they provide will differ with each person and tend to be higher than standard rates because the lender takes a significant personal risk to approve you. However, applying and receiving the requested amount is much quicker than other lenders and can even have shorter repayment periods. That said, one may get their loan in a matter of a week as opposed to a few weeks with a traditional lender.
Who Can Benefit From This Loan
A hard money loan is a great option for real estate investors. Due to their interest rates and process speed, this type of loan is helpful when purchasing property, and in situations when one may not be qualified for traditional funding.
For example, if you’re looking to flip a property, time is of the essence, which means you need funding right away to perform the proper renovations and repairs on the property. With a hard money loan, you can receive your financial support, sell the property for a profit, and pay back the loan in a short amount of time.
There are many benefits of working with hard money lenders. Just be sure to research the professional you decide to work with to ensure they can help you with your professional goals.
Now that you understand what you need to know about hard money loans, you can properly fund your next real estate project to ensure you’re on the path to success!