If you’re not comfortable parting with a substantial amount of cash up front to purchase real estate, a hard money loan can help you quickly. Hard money loans, sometimes referred to as bridge loans, are short-term lending instruments that real estate investors can use to finance an investment project. This type of loan is often a tool for house flippers or real estate developers, whose goal is to renovate or develop a property, then sell it for a profit. Hard money loan is completely different and has many advantages over traditional financing. There are several good reasons to consider getting a hard money loan instead of a conventional mortgage from a bank. Here are the main benefits this lending option offers to investors:
1. Hard Money Loans Are Approved and Funded Quickly
One of the biggest advantages of using a hard money loan is the speed at which loan approval and loan funding take place. In many cases the approval for the hard money loan can take place in just one day. Real estate investors who haven’t previously used hard money will be amazed at how quickly hard money loans are funded compared to banks. Hard money loans can be funded with 3-5 days if needed. Compare that with 30+ days it takes for a bank to fund. This speedy funding has saved numerous real estate investors who have been in escrow only to have their original lender pull out or simply not deliver. This is a perfect situation for a hard money lender to step in, provide financing quickly and save the deal.
2. Hard Money Loans Have Flexible Terms and Few Requirements
Hard money loans have few requirements, especially when compared to bank loans. Traditional banks have lengthy lists of requirements a borrower must meet in order to qualify for financing and are known for saying “No” more than “Yes”. Their list of requirements increases each year and many of them seem arbitrary. Banks also have a list of issues that will raise a red flag and prevent them from even considering lending to a borrower such as recent foreclosures, short sales, loan modifications, and bankruptcies. Bad credit is another factor that will prevent a bank from lending to a borrower. Most banks will not lend to a borrower who already has 4 mortgages even if the borrower’s credit is perfect with no other issues. Banks are also unwilling to provide home loans to borrowers who are self-employed or currently lack the required 2 years of employment history at their current position.
Luckily for real estate investors who may currently have some of these issues on their record, hard money lenders are still able to lend to them. A hard money lender would be able to provide a short term loan (1-3 years) to enable the borrower to purchase their property. In the case of the borrower without sufficient employment history, they would be able to refinance out of the hard money loan and into a lower cost conventional loan once they obtained the necessary 2 years at their current position.
3. Hard Money Loans Provide Funding For Projects That Cannot Be Financed Elsewhere
Hard money lenders provide many loans that conventional lenders such as banks have no interest in financing. A good example of this is a fix and flip loan. These projects involve a real estate investor purchasing a property with a short term loan so that the investor can quickly make the needed repairs and updates and then sell the property. In most cases, the real estate investor only needs a 12 month loan. A 12 month term doesn’t work with a bank’s business model. Banks want to lend money for the long term and are happy to make a small amount of interest over a long period of time.
There may be numerous issues with a property that may prevent the property from qualifying for a traditional bank loan. A hard money lender would be able to provide a borrower with a loan to purchase a property that has issues preventing it from qualifying for a conventional bank loan. The borrower could then make the necessary repairs and refinance with a bank loan.
The Bottom Line
Hard money loans are a good fit for real estate investors who need to get funding for an investment property quickly, without any of the red tape that goes along with bank financing.
Magna Capital Group, Inc offers the best lending option for every borrower. We treat our clients with honesty, fairness, and a first class service. For more information, call (323) 655-6888 or email at firstname.lastname@example.org .