People who like to invest in real estate have at some time have looked into a hard money loan. A hard money loan can be very helpful when buying real estate. Yet, Is it hard to get a hard money loan? Or How do you qualify for a hard money loan? A hard money loan is a type of loan that subsidizes a hard asset.
Hard Money Loan Assets
The loan asset usually will consist of a tangible property that has the ability to produce a profit so that the loan can be repaid. In contrast, purchasers secure a traditional mortgage from a bank where they’re required to repay the loan over a period of years.
A hard money loan usually is in the form of a private loan that is investment will be a private lender. This is completely different from loans funded by a government-regulated financial institution.
People who provide hard money loans do what any other bank or lending institution will do, they loan money. But, there are differences when it comes to approval processes, loan terms, and the purpose of the loan.
Most hard money loans specified to real estate investors who must have short-term funding for a real estate investment deal. Most real estate investors understand that cash is king and good deals go. They know from experience that their buy price for the property will not be competitive if they do not have quick access to enough funds to complete the deal.
What are hard money loans used for?
The primary two reasons why an investor would use a hard money loan is: to either get immediate funds for a fix and flip deal or to provide a bridge gap so that they can later secure longer-term financing. For example, a real estate investor may use a hard money loan to buy a rental property, fix it up, and then later get a traditional loan from a bank or other lending institution.
Real Estate Deals
Hard money loans are the favorite type of loan for anyone who wants to flip real estate but cannot secure adequate funds from a bank. The bank has stricter guidelines with the borrower has a poor credit rating.
Besides, a hard money loan also comes with a higher interest rate and organization fee. The reason for this is simple. The lender requires a higher rate to compensate for an increased risk that may occur with the real estate deal.
A traditional financial institution loan and a hard money loan have some notable differences. For instance, a traditional loan can reimburse for 15 to 30 years whereas a hard money loan will have a typical term of 6 to 18 months. The hard money loans rates is anywhere between 4% to 10% higher.
A traditional loan is usually for an owner-occupied property and a hard money loan is for a short-term investor. Traditional loans will subsidize both the borrower’s personal credit and the property whereas a hard money loan’s collateral will only be the property.
When applying for a bank mortgage
When a person applies for a typical bank mortgage, the financial institution will make sure that the borrower can keep up with monthly payments. The bank will also confirm that the value of the property is higher than the mortgage. Banks prefer to provide mortgages for owner-occupied homes as opposed to investment properties. A bank’s mortgage review takes between 30 to 45 days.
A hard money loan lender focused on the real estate deal. He will consider things like whether the financials make sense, are the renovations budgeted, is there a discount, and will the applicant be able to make a profit and repay the loan on time. In only 7 to 14 days, a hard money loan can permit and funded.