A hard money loan is a type of short-term loan that can be used to purchase real estate. A borrower typically takes out the loan for the interest-only, borrowing the full amount of the property purchase costs. With this type of loan, you can get access to your funds way faster than through traditional lending channels, like banks or even credit unions.
A hard money loan can be useful when a borrower cannot get a traditional loan from a bank or other lending institution because of lack of collateral, poor credit scores, too many debts, or job loss. For example, a borrower may want to purchase a home. Still, the borrower has no savings or credit score from which to borrow, or the amount of money needed is greater than the typical loan limits at banks and credit unions. A hard money mortgage loan is made with the intent of making a profit and not as a long-term investment.
Who makes hard money loans?
Any company that offers a hard money loan can be considered a hard money lender. Hard money lenders are companies that specialize in the lending of funds for real estate investments. They typically use the funds to buy real estate. Hard money lenders typically offer hard money loans to borrowers who do not have access to traditional lending. A hard money lender will typically be willing to make a hard money loan to an individual, group of individuals, corporations, LLCs, and even non-profits or government agencies.
Why is a hard money loan a good option?
Securing a loan can be difficult and time-consuming in today’s real estate market. But for those who qualify for a hard money loan, the process is fast and easy. The borrower may or may not have equity in the property. Once a lender determines that a property meets its underwriting guidelines, they will purchase the property and lock it up for the borrower. Using a hard money loan allows borrowers to get a loan for their real estate project without going through long and drawn-out processes involving banks and other lending institutions. The interest rates for a hard money loan can be anywhere from 12% to 24% APR depending on the property purchased and the collateral quality.
Hard money loans can also offer much faster closing times, often less than five business days. The borrower does not have to put down any funds upfront. The hard money lender will place a security deposit on the property and will then look to purchase the property. Typically, hard money lenders will pay for closing costs and associated fees on behalf of the borrower.
How does a borrower prepare for a hard money loan?
A borrower should have a well-defined and clear plan before applying for a hard money loan. The borrower should show the lender that they can repay the loan. If the borrower uses the loan as a down payment on a home, the borrower may want to get pre-approved for financing before purchasing the property.
Another way to prepare for a hard money loan application is by having the property appraised. A proper appraisal will give a lender a basis for pricing the property. The appraiser can perform a market analysis of the property and give the lender an idea of a fair asking price.
How does a borrower find a hard money lender?
HMLs are not easy to find, and their website usually does not give a comprehensive list of the hard money lenders in a given area. When a borrower is ready to apply for a hard money loan, the borrower will need to visit a real estate agent, mortgage broker, or hard money lender.
The borrower can visit a hard money lender’s website and request a list of lenders in their area. The borrower can then contact the hard money lender directly and give the property’s details. The lender may ask for an initial deposit to secure the property. Some hard money lenders charge a flat rate, and some charge a rate based on an appraisal. The loan officer will consider the borrower’s credit score, income, and the costs and fees associated with the loan. After the borrower has determined that a hard money loan is in their best interest, the borrower should visit a hard money lender in person to go over their loan options. The lender can be an actual lender, an employed real estate agent, or a mortgage broker.
How do I qualify for a hard money loan?
Hard money lenders are looking for cash buyers because they are more flexible. Hard money loans are sometimes easier to get than conventional loans because hard money lenders are not limited by how much money you can put into a down payment. Hard money lenders are more interested in the borrower’s financial health and how the borrower plans to pay the loan back.
Hard money lenders want a letter of commitment or a commitment letter stating that a lender will loan them money and a buyer will get a loan. The lender’s commitment letter is a piece of paper that the lending institution gives the borrower, making the offer on the property binding. Lenders want the borrower to get pre-qualification from a lender, and a letter of commitment will ensure that the borrower has a lender. In some cases, the borrower may get a conventional loan. However, a conventional loan does not allow for flexible terms. A borrower may have to put at least a 20% down payment to get a conventional loan.
What are the benefits of a hard money loan?
Hard money lenders are more flexible than conventional lenders. Hard money loans are more flexible because lenders do not necessarily put a set percentage down payment on a home. Hard money loan lenders are looking for cash buyers because they are more flexible. Hard money loans are sometimes easier to get than conventional loans because hard money lenders are not limited by how much money you can put into a down payment.
How fast can I get a loan?
If you are looking for a quick and simple solution to your current problem, then hard money loans may be the answer. The average borrower can get approved for this type of loan within 2-5 days, much faster than other loans. However, some important considerations need to be met before applying for this type of loan.
Hard money loan requirements
A hard money loan is a type of alternative lending with some specific requirements that must be met before applying for this type of loan. Hard money loan program requirements are the following:
- Property must be within a certain area.
- The property must be in good condition.
- The property must be in good financial condition.
- You must have a household income.
- You can not have any other outstanding loans.
- You must have a credit score.
- You must have a good credit history.
- You must have a signed contract.
Additional requirements for hard money loans include the following:
- The property needs to be free and clear of any liens, including the borrower’s mortgage.
- You must have a contract.
- You can not have any outstanding judgments.
- You can not have a foreclosure in process.
- You can not have any unpaid taxes.
- You must be a U.S. citizen or legal resident.
If you need money now and can provide as many documents as possible, getting a hard money loan may be the best solution. The process is much easier than seeking out other traditional forms of financing, such as a bank or credit union, which usually require more documentation and time for approval.
Choosing to use a hard money lender can be an excellent decision. Depending on your situation, it may be the best option for you, given the time and financial constraints that you’re facing. It’s important to consider all of the options you have before deciding, but you can find success with a hard money loan.