What is your initial thought when you hear the words hard money loan?Also called a private money loan, these words conjure quite an image in our minds. We think of lenders bearing down on the desperate in dark alleys. A shady transaction takes place where the borroweris forced to pay sky-high interest rates. Doesn’t that ring true?
The present daysare unlikethe dark timeswhere only hard money lenders were predators with an intention to foreclose on the borrower’s property. Today’s lender won’t agree to a loan risk to themselves or the borrowers!
Have questions about how hard money loans work? Then let us answer them for you:
Can hard money loans be considered cash or not?
If a deal doesn’t require any financing contingency or a loan to be considered closed, it is known as an all-cash deal. While the name of the deal might be misleading, a buyer wouldn’t show up to such a meeting with neat stacks of cash in a briefcase! In such transactions, the buyer may use a cashier’s check or a wire transfer to pay.
Hard-money loan, on the other hand, is a mortgage based on the value of the underlying asset. It usually doesn’t factor in the strength of the borrower, unlike most conventional loans. Lenders who work with hard money take a higher risk though. That’s why a borrower might pay a higher rate of interest as compared to that on a bank loan. Check out the usual terms offered by hard money lenders here.
Besides this, initially, as a buyer, you would have to pay more in terms
Advantages of hard money loans
Hard money loans come with several benefits appreciated by both parties, i.e., the borrower and the lender. Here are some of them:
- The absence of any loan contingencies because of a thorough vettingof both the borrower and the property
- There aren’t any appraisal contingencies either. As a borrower, you may order one, but the offer isn’toutcome-dependent
- It closes as quickly as within 10-15 days, as opposed to the long durations that are usually seen with traditional lenders
- The borrower isn’t usually concerned with the condition of the property that they will be buying while using another one as collateral. In fact, the less pristine conditionthe property is in, the easier it is to purchase it with private money
- Hard money agreements are much more flexible because of the absence of a standardized underwriting process unlike the one in a bank loan. Each deal is evaluated individually, and most of the time, a borrower can tweak the repayment schedules to onesthat they are comfortable with.
Hard Money Lending is a viable option because it is evidently beneficial for all parties involved, including borrowers, investors, lenders, and sellers.
What are the best hard money loan deals?
Hard money loans are great when you don’t have the time to go through a lengthy loan process. Alternatively, they are also ideal when you cannot satisfy the innumerable requirements of banks and the other conventional lending institutions.
You should consider a hard money loan for a land or constructionventure, afix-and-flip, or any real estate investment. This is because all these require you to take quick action.
Which are the best property types to use as collateral for a hard money loan?
Most types of properties can be used as collateral for a hard money loan. However,different lendersspecialize in different property types. Find one whose niche agrees with the type of property you have. If you do this, you can rest assured that the lender would haveexperience in such deals.
Another thing is that the owner-occupied residential properties are subject to stricter regulations. Therefore,many lenders who don’t want to get in the middle of a legal hassle will avoid them. Your best choices are commercial land holdings and single-family residential buildings.
Where will I find reputable hard money lenders?
You can find a hard money lender in four ways. They are:
- Running an internet search
- Asking other real estate developers and investors whom you trustfor the names of the lenders they have used
- Attending real estate-related events and asking for reputable private lenders from the people there
- Askingsomeone you know who is both affluent and interested in being your hard money lender
Who else will have some references of reputable hard money lenders for me?
You can ask anyone who has experience with borrowing hard money loans. Think about it: if you want recommendations for the best steak in town, you’d ask someone who regularly eats steak and has tried different places. Right?
Hard money loans shouldn’t be used to finance every venture or real estate deal. However, they can be a great alternative to conventional forms of loans when used in the right way!
