What is the benefit of Hard Money Lending?
Hard Money Loans is a way to borrow money without a traditional bank. Who benefit from Hard Money? Well, for starters House Flippers or Real Estate Investors. When flippers are in the market to buy a new house, time is of the essence. They can get approved and close in less than a week. Traditional bank loans can take weeks or longer. The process is quick and easy. And, same-day approval is likely in most cases. Unlike Traditional Banks, the process is painfully slow. There are a lot of factors that play a role. Even if you have a great income and a high credit score, if there are negative history in your credit, the process can take longer. Sometimes the outcome is not in your favor.
How does Hard Money Lending differ from Traditional Banks?
The loan process is based on collateral. Lenders are less concerned about your ability to repay. So, what happens if you cannot repay? Well, in the unlikely event that you cannot repay the loan, the Lender will take the collateral and sell it. Thus, the value of the collateral is more important than your financial position.
Additionally, these loans are short term. It can be as little as 1 year and up to 5 years. Real Estate Investors usually do not keep Hard Money Loans longer than this because the Interest Rates are much higher in comparison with Traditional Loans.
Why Consider Hard Money Lending?
As explained in Forbes.com – Hard Money Loans is a fast process. Since the Lender is mainly focused on the collateral and not your credit or financial position, the process is quick. It’s also Flexible. In other words, Hard Money Lenders do not use a standardized underwriting process. Every deal is evaluated individually. For example, you may be able to change repayment schedule.
What if I have a Foreclosure or Bad Credit History?
Hard Money Lenders are less interested in your Credit History and more concerned on the investment property you are purchasing and it’s value. Or, if you already have a property and need to borrow against it. Once again, the value is what a Hard Money Lender cares about. However, be ready to show your financial ability to repay if a Lender asks for your finances. A lender does not want to take your collateral, instead they want to establish a business relationship, so you can repay the loan within the specified term and continue to do business in the future. Some Hard Money Lenders want to ensure you can repay the loan you borrow.
What are the disadvantages?
Hard Money Loans are expensive. It’s not meant for you to buy a home and live in it. But if you do, you’ll want to refinance as soon as possible. Remember, Hard Money Loans are short term. From one to five years. Usually, Real Estate Investors / House Flippers use this as a quick investment deal to make a quick profit. And, Hard Money Loans has a higher interest rates than Traditional Banks. It’s meant for investors to purchase a house just long enough to increase the value and repay the loan fast. Hard Money is not long term.
If your credit is less than perfect and you fear that Hard Money Loans is your only option. Speak to an experienced Mortgage Broker, that specializes in both Traditional Loans and Hard Money Lending. You may be surprised at what you qualify for. There are many programs that can benefit you. In addition to Hard Money Lending, there are FHA Loans for people with less than perfect credit, or for First Time Home Buyers. If your house needs repair, there’s FHA 203K Loans. Also, if you have the credit and financial stability to get a Traditional Loan and you don’t mind waiting a few weeks for the loan process, then you may benefit from a better loan term than a Hard Money Loan. But if you are an investor looking to flip a house in just a few short months, Hard Money Loans may be the best option for you.
Call The Mortgage Specialist Today
The first step to determine what loan option you should consider is to contact with The Mortgage Specialist. Not only is The Mortgage Specialist experienced in both Traditional Loans and Hard Money Lending, they are local, with offices in Hollywood and Miami Florida. The Mortgage Specialist understands the market in both Real Estate and Loans, and can guide you to obtain the loan that is right for you!