What exactly is a hard money loan? What are the advantages and disadvantages of these loans? Before you apply for a hard money loan, you’ll want to find out the answers to those questions. Let’s go into more details about what they are, as well as the pros and cons they have to offer.
1. What Are Hard Money Loans– It is a loan that is backed up by a property’s value, and not backed up by the borrower’s credit. This type of loan is sometimes called a short-term bridge loan. This type of loan usually has a higher interest rate than other types of subprime loans and lenders can sometimes be private individuals. This is because most banks and other traditional lenders do not offer the loans.
Hard money loans are often obtained by those who are looking for a short-term financing solutions or when they want to turnaround/flip properties. Borrowers with bad credit often apply for such loans. That is what a hard money loan is and what it is commonly used for.
2. The Pros- These types of loans are approved quickly, with many loans being approved in just one or two days. The lender will take the property and the amount of the down payment into consideration before they decide to approve or deny the loan application. Other things will be considered, but those two are some of the biggest considerations taken in by hard money lenders.
Another major advantage of hard money loans is they are easy to get. Lenders typically don’t have a bunch of strenuous requirements for applicants to meet, which is why many people are approved after they apply. If you don’t want to meet the strenuous requirements that banks have in place for their loans, then applying for a hard money loan may be worth considering.
Also, hard money lenders often give loans to those who want to take on projects that cannot be financed elsewhere. This includes flipping real estate or investing in risky property endeavors and things of that nature. Many banks will not provide a loan to someone looking to flip a property because the bank considered it a risky project and there’s a chance that the borrower will not be able to flip the property.
3. The Cons- The main disadvantage of hard money loans is the interest rate. It is usually far higher than traditional bank loans, and this is because the lender is taking a huge risk, even if you have a stellar credit score and history. If you are approved for a hard money loan, then expect to pay very high interest rates. Just remember, these types of loans are very convenient, so you might not be bothered by the interest rates.
Now you know the pros and cons of hard money loans. You also have a better understanding of what they are. What you should do now is weigh the pros and cons and then you can decide whether or not you should apply for a hard money loan.