If you’ve even considered investing in property before, you might have looked into the most popular financing options. Hard money lending is one of the most useul tools for professional investors, helping them to fund projects quickly and close deals that they might have otherwise missed out on.
But what exactly is hard money lending, why is it so popular in real estate investing, and, importantly, when is it the right option for you? Keep reading this article to find out everything you should know about hard money loans for real estate.
Hard money loans come from private lenders: companies that lend their own money, rather than banks.
The main characteristic of hard money loans is that they’re provided based on the value of the property you're using as collateral, rather than your credit score. Hard money lenders base the loan amount on that property's value, not your income or how much debt you have.
You apply for a hard money loan as you would with any other loan, usually online, supplying the information required from you in the application form.
But the difference is that the loan approval process moves faster than with traditional loans because hard money lending involves fewer requirements.
Real estate investors are the target audience for hard money loans thanks to their speed and flexibility. You can get funding for your real estate project in just a few days—and that's a big reason people use them for securing time-sensitive deals, like buying a property at auction.
Another reason to use hard money lending is if you don't qualify for a conventional loan; for example, if you’re self-employed or have less-than-perfect credit.
We’ve already touched on the key differences between hard money lending and other loans, but let’s look at them in more detail here.
The first thing to know is that hard money loans have higher interest rates, so you’re paying more for that speed and flexibility. Plus, the loan terms are shorter, usually around six months to a few years, so they’re not intended for long-term financing. The idea is that you pay off a hard money loan quickly, usually by selling or refinancing your property.
It’s also worth keeping in mind that hard money lenders take on more risk, so they usually require a lower loan-to-value ratio. What does that mean? More equity or a larger down payment from you.
Risks of Hard Money Loans to be Aware of
If you're thinking about using a hard money loan, there are a couple of risks to be aware of before you sign on the dotted line:
Hard money loans are the best choice for projects that you need to fund quickly and plan to pay off ASAP. Hopefully, this article has helped you to understand how hard money lending works and when it can give you a way forward in real estate investing.
But what exactly is hard money lending, why is it so popular in real estate investing, and, importantly, when is it the right option for you? Keep reading this article to find out everything you should know about hard money loans for real estate.
What Are Hard Money Loans?
Hard money loans come from private lenders: companies that lend their own money, rather than banks.
The main characteristic of hard money loans is that they’re provided based on the value of the property you're using as collateral, rather than your credit score. Hard money lenders base the loan amount on that property's value, not your income or how much debt you have.
How do Hard Money Loans Work?
You apply for a hard money loan as you would with any other loan, usually online, supplying the information required from you in the application form.
But the difference is that the loan approval process moves faster than with traditional loans because hard money lending involves fewer requirements.
Who Uses Hard Money Loans?
Real estate investors are the target audience for hard money loans thanks to their speed and flexibility. You can get funding for your real estate project in just a few days—and that's a big reason people use them for securing time-sensitive deals, like buying a property at auction.
Another reason to use hard money lending is if you don't qualify for a conventional loan; for example, if you’re self-employed or have less-than-perfect credit.
What Makes Hard Money Different From Other Loans?
We’ve already touched on the key differences between hard money lending and other loans, but let’s look at them in more detail here.
The first thing to know is that hard money loans have higher interest rates, so you’re paying more for that speed and flexibility. Plus, the loan terms are shorter, usually around six months to a few years, so they’re not intended for long-term financing. The idea is that you pay off a hard money loan quickly, usually by selling or refinancing your property.
It’s also worth keeping in mind that hard money lenders take on more risk, so they usually require a lower loan-to-value ratio. What does that mean? More equity or a larger down payment from you.
Risks of Hard Money Loans to be Aware of
If you're thinking about using a hard money loan, there are a couple of risks to be aware of before you sign on the dotted line:
- First, you need a clear exit strategy. The last thing you want is for your project to overrun, so you end up with a high penalty or even facing foreclosure.
- Second, be prepared to pay several different fees associated with your loan before you commit to anything.
Hard money loans are the best choice for projects that you need to fund quickly and plan to pay off ASAP. Hopefully, this article has helped you to understand how hard money lending works and when it can give you a way forward in real estate investing.
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