Using a regular loan when investing in real estate may not always be the best option for you. Yes, conventional loans have supported many types of real estate investments, but getting a conventional real estate loan can be a very daunting task. Investors must meet a variety of criteria in order for a traditional lending institution to lend to them.
So, does this mean that borrowers who cannot qualify for a traditional loan should refrain from investing in the real estate market? Not at all. In fact, many investors don’t even rely on conventional loans to support their investments.
But what do investors do when they need fast financing at affordable rates? The answer is hard money loans.
What are hard currency loans?
Hard money loans are investment property loans provided by individual investors and companies that lend money to investors, for example Asset-based lending… The purchased asset often serves as collateral, reducing the risk for both the lender and the recipient of the loan.
Hard money loans are great for quick home financing where investors buy dilapidated houses, renovate them, and then sell them for a profit.
Hard money loans are mostly short term loans and they often last 1 to 3 years as their interest rates are often higher than traditional financing options like mortgages.
If you think you might need a solid loan, here are three important benefits you can look forward to.
1. Fast processing time
On average, traditional lenders process a loan for about 28 days. This is far too long for real estate investors, especially in an industry with so many players and where property values fluctuate every week.
In those 30 days, the investor could get a hard currency loan, buy a property and start renovations to sell the place and refinance the loan he originally took out. Thus, hard money loans have become a very attractive alternative to bank loans.
2. High chances of approval
One of the biggest challenges real estate investors face today is getting a loan from traditional lenders such as banks and government agencies. These lenders often take an applicant’s credit status and annual income into account in order to decide if they will grant a loan.
In some cases, the bank does not provide the full loan amount, leaving the borrower with little choice but to look for another financier.
However, hard money lenders do not take into account the investor’s loan or income. While they will keep the property as collateral, the main requirement is that the loan amount be equivalent to the value of the property being purchased.
3. More flexible payment terms.
As private lenders provide hard currency loans, you have more room to negotiate over the long term. You can even customize the repayment plan according to your financial capabilities. status… This makes hard money loans very convenient, especially for those who are just starting their own business.
As an investor, you may have limited options and very little time to access the finance you need to buy a property. A hard money loan can be ideal as it doesn’t come with any of the red ribbons that come with bank financing.
If you have a hard money lender, try not to make hasty decisions. Make sure you evaluate their terms, commissions and interest rates to make the right choice.
Based on a story by Brad Bernanke