Hard Money Loans offer many benefits to the right type of borrower.
While they are not designed to be long-term loans for residential home buyers, they can serve many purposes, including a temporary loan until more permanent financing is secured or to finance the purchase of a distressed property to flip.
Hard Money Loans do not focus on the individual borrower's financial situation but rather on the project and the property. Experienced real estate investors in particular can qualify for a private loan with little down, despite having bad credit or prior bankruptcy. Self-employed individuals or those who need a stated loan can also find it easier to obtain a hard money loan.
Properties that require extensive rehab or repairs typically cannot qualify for conventional loans, even when the borrower is well-qualified. Hard Money Loans are designed for investors who want to rehab properties, whether it is to flip the property or rent it out.
Investors who find a good deal know that timing is important. A bank loan can take one to two months to close, allowing great deals to slip away. Hard Money Loans can close in days or weeks, allowing borrowers to make all-cash offers on distressed properties or grab good deals before someone else does.
Hard Money Loans typically have a short repayment period, which makes them ideal for home flippers who want to hold the property for as little time as possible to realize the greatest profit. This means private loans can also be a good option for buyers who are looking for a bridge loan until more permanent financing is arranged.
In today's market, it is not uncommon for investors seeking a conventional loan to be required to pay up to 25% or much more to acquire a property and then pay out of pocket for renovations. Hard money financing makes it possible to buy and renovate properties with very little out of pocket costs, allowing investors to quickly maximize their return on investment and make real money while paying very little down.
As with any financing option, there are downsides to a private money loan. Interest rates are generally higher, which is in exchange for being available to borrowers of all income and credit types along with very fast processing and funding.
In some cases, a high down payment may be necessary, but this will depend on the purpose of the loan, the investor's experience and the type of property. Private loans are also short-term, although this is usually the goal of most real estate investors.
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