Hard money loans are types of financing that involve a borrower using the physical property as loan collateral to receive a loan. You can receive such a loan from private investors and non-bank financial institutions. Hard money lenders want to have their principal loan amount, including the interest earned, within 1-5years. That’s why they are considered short-term loans. Below are reasons why you should go for a hard money loan.
Flexibility
Hard money agreements are relatively flexible compared to traditional loan agreements. Lenders are never concerned about the standardized underwriting process. They focus on evaluating each contract individually. When repaying the loan, you might need to consider borrowing from lenders willing to talk about repayment schedules. Such a lender may decide to extend the loan repayment time, unlike when you go for a large corporation with strict policies.
Speed
Here, the lender is focusing on the collateral; closing the deal is quicker than that of traditional loans. The lender doesn’t spend time analyzing and assessing your loan application, verifying your income, and going through bank statements. Once you develop a relationship with the lender, the loan approval process is quick, helping you complete the process within no time, which can’t work with other financial lending institutions.
Approval
Again, all that the lender wants are collateral. For example, when you are purchasing an investment property, your lender will give you an amount equivalent to the property’s worth. When you have a foreclosure, or your credit report reads negatively, that is less important to the hard money loan lenders since they don’t look at your credit.
It is important to understand that most hard money lenders have a relatively low loan-to-value ratio (LTV ratios). In most cases, their maximum LTV ratio ranges between 50% and 70%, which means that you need assets that qualify for your intended hard money.
