In November 2021, there were 402,000 homes for sale.
If you were interested in purchasing one of those homes, you might want to apply for hard money loans for real estate.
But what are hard money loans, and what should you know about them? Keep reading to find out!
What Is a Hard Money Loan?
Hard money loans for real estate investors are short-term loan that doesn’t conform. It doesn’t come from your traditional lender, but it comes from private companies or individuals that will take property as collateral or asset.
Borrowers can apply for this loan if their mortgage or loan application was denied. However, some people apply for one because getting approved for a traditional loan can take a while.
However, like a regular mortgage, this loan is a secured loan, and it’s guaranteed for the property that you’re trying to purchase. The hard part of the loan is that there is some tangible asset that you’re using to increase the value of the loan.
If you default on this loan, then the lender gets to own that asset to make up for the losses.
This is faster and normally doesn’t have as difficult of an approval process, making it ideal if you want to buy a home quickly in a competitive market. In some cases, the application process only takes a few days.
1. Who Should Use It?
Real estate investors might want to choose this loan for a few different reasons. The main reason that people want to choose this money lender is to get funds quickly.
The application process is very quick, so you can have the funds to purchase the investment property. This is a great benefit for a real estate investor. In a scenario where there are multiple bids, a quick close with a hard money loan might get someone’s attention and set their offers apart.
Another reason to choose this loan is if you’ve been rejected from conventional loans. Your loan could get rejected for any issue, like credit issues, foreclosures, and short sales. Some banks also want income history.
If you just started a new job, you may get your request denied. This is when you can get a hard money loan as a loophole.
2. How It Works
When you want a hard money loan, you’ll go to mortgage hard money lenders to initiate the loan. You can use this to finance an investment project.
This loan is great for real estate developers or house flippers and then sell it for any profit. You can get this from a private lender rather than going to a bank.
Once you submit an application, a lender will value the property that you’re putting up as collateral. This is in contrast to a bank that will look at your financial history.
There are many benefits to getting this type of loan over a traditional loan or mortgage from the bank.
The first benefit is convenience. It’s so much faster and easier than applying for a mortgage that could take months to close. This could put you at risk of losing on investment properties.
With the hard money loan, you can get funding in just a few weeks, and it’s important to use this if you want to be competitive in the real estate market.
The collateral is also a benefit. The property itself is usually what you will put up as collateral, but you’ll still have some wiggle room in here.
Some lenders will let you secure the loan using different personal assets, like a current property you own or a retirement account.
Lastly, these loans often have more flexible terms because they’re offered by private lenders. There’s more room for negotiation as well.
You could flex the repayment schedule, waive fees, or even reduce the underwriting process. Some people can even get the underwriting process eliminated.
4. What They’re Used For
These loans are great for purchases where you’ll be flipping a house. You can use this to buy a low-cost property that needs to be fixed. You can then make repairs and renovations that will boost the value of the home for profit.
These projects normally happen in a short timeline, so professional flippers also want a shorter finance period as well. They’re also trying to sell the home within a year, so they don’t need a long loan period as someone would with a mortgage.
5. Interest Rates
The interest rates charged by hard money lenders will vary depending on the region and the lender you choose.
Some hard money lenders in California will have lower rates because there are many of those institutions there. If there is more competition, it could reduce the prices.
The rates for a hard money loan are normally more than a traditional mortgage loan because the lenders are taking on more risk. Because of this higher risk, you may have to pay a 10 to 15% higher interest rate.
To get the best estimate for your rate, contact a lender today.
Learn More About Hard Money Loans for Real Estate
These are only a few things to know about hard money loans for real estate, but there are many more factors to consider.
We know that trying to get business loans and hard money for real estate can be a difficult process, but we’re here to walk you through it.
If you found this guide useful, explore our website. We have even more guides to help you out!