If you’re just starting, you may not know what a hard money loan is. In the most basic sense, a hard money loan is a short-term high-interest loan by a private investor (or a fund of investors) based in real estate. The terms of the loan are usually about a year, although they can be longer.
Hard money loans were blamed, in part, for The Great Recession, and since then has been unable to shed its negative reputation. However, there are many benefits real estate investors can gain through hard money loans.
The most obvious benefit of a hard money loan is the speed at which they get approved. A traditional loan application has to go through many bureaucratic procedures before its finalized. For instance, it could take several weeks to get your income verified and review your bank statements.
While a hard money lender would do its proper due diligence to make sure you’re able to pay off your debts, it’s generally much quicker. Furthermore, once a relationship with a hard money lender has been established, the process is almost instantaneous. This allows you to close deals, especially in a competitive market where time is of the essence.
Another aspect of hard money loans that real estate investors are sure to appreciate is the flexibility hard money loans allow. A traditional bank or financial institution usually has a standard underwriting agreement for everyone.
A hard money lender is more likely to negotiate with investors. A real estate investor could bring up unique issues that could be factored into the deal, and you could adjust things like the interest rates or the repayment schedule.
Approval and Collateral
Collateral is a significant point where hard money lenders and traditional loan providers diverge. Collateral is what a loan seeker puts on the line in case they must default on the loan. For instance, if they can set their fully paid off car up as collateral, when financing another car.
If you’re looking to invest in property, the moneylender will loan you as much as the property is worth, if you’ve got collateral to match that. Things like negative credit scores or prior foreclosures have much less of an impact. This makes approvals of the loan much more likely.
Are you interested in real estate investing, yet need help arranging the funds? Why not get in touch with Global Capital Partners Fund. They are New York’s leading commercial lending firm, and provide flexible hard money loans in Evansville, IN. Get in touch with them today.