Pros and Cons to a Hard Money Loan

Pros and Cons to a Hard Money Loan

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Personal finances are an important part of your past, present and future. After all, you need money not only to survive, but also to do the things you want to do in life. Sometimes, you may fall short of your savings goals or need to borrow money to make a big purchase. That's where hard money loans can come in.

What are Hard Money Loans?

First of all, it's important to understand what a hard money loan actually is. This is a specific kind of asset-based loan financing in which the funding is secured by real property. In other words, a hard money loan is a form of funding using real estate/property as collateral, rather than the creditworthiness of the borrower. If you have poor credit or struggle to get a loan from traditional lenders for what is deemed a risky property, a hard money loan could save the day. In a world where debt is so common – 58% of college graduates have student debt, according to the Kennedy School at Harvard's Institute of Politics – hard money loans can make a major difference.

These are short term loans with higher interest rates, issued by private individuals and companies that are willing to take on the risk. Many people use hard money loans in their real estate endeavors, with flipping houses being the top example. Property flippers who want to renovate and resell the property within a year or sooner may turn to hard money loans for help. Although the interest is higher, if the borrower intends to pay off the loan quickly, usually within one to three years, then it can be a worthwhile financial move.

Hard money loans are often easier to obtain than traditional forms of financing, and as long as you do your research beforehand and choose a qualified, suitable hard money lender, you should have a good experience. While flipping houses and turnaround situations is a primary reason why hard money loans exist, this funding can also assist borrowers with low credit scores but considerable equity in their property. Plus, hard money loans can be issued quickly, so they can be a good way to avoid foreclosure in the short-term.

Hard money lenders pay less attention to a person's credit score and concentrate more on their property assets. If you've been turned away from traditional funding sources such as a bank or mortgage broker, it may be time to explore the benefits of a hard money loan.

What are Pros of Hard Money Loans?

As with anything in life, there are both pros and cons to a hard money loan. Depending on your situation, you may find that the pros far outweigh the cons. Perhaps one of the biggest advantages to hard money loans is that they move quick. You don't need to wait for weeks and months on end to get approved for this kind of funding. Overall the U.S. has a mind-boggling $10 trillion in mortgage debt alone, as reported by the Federal Reserve, so it's crucial that you make the right choice when it comes to your type of loan. If you need money fast, and you don't mind paying higher interest for the short-term, then a hard money loan could be the solution you've been looking for.

Another pro associated with hard money loans is the relatively straightforward and simple approval process. If you have the right criteria, namely a property that can serve as collateral, you may be approved faster than anticipated. So long as you're working with a trusted hard money lender, you may get great financial news. Being approved for a hard money loan is a big moment, especially if you've want to get into property flipping or you've been refused traditional forms of lending.

It can be frustrated and disappointing to be rejected by banks and mortgage brokers time and time again. If you've been let down by potential lenders and you're feeling flat about your financial circumstances, a hard money loan could have a positive impact on your life. That's because these loans are an attractive alternative for those who could not get a traditional loan due to poor credit history or other circumstances. Hard money lenders tend to be more flexible, as they don't use a typical underwriting process when it comes to approving loans. Instead, these lenders evaluate every deal individually, meaning you may be able to discuss repayment schedules, interest rates and more. Rather than dealing with the big banks and large corporations, you may be working with an individual or small-business minded hard money lender who is more likely to meet your needs.

What are Cons of Hard Money Loans?

Of course, it's also important to consider any potential downsides to hard money loans, which will be dependent on your current financial situation. Generally speaking, the biggest disadvantage to hard money loans is that they can be more expensive in terms of interest. Because they are so fast and flexible, hard money lenders are able to tack on higher interest rates to accommodate the loan terms and conditions.

If you're planning on paying back your loan within a few years, the increased interest rate won't be too much of a factor for you. This is particularly relevant for property flippers who know they will be reselling the property for a profit in a short amount of time. For homebuyers who are planning on living in their house for years to come, higher interest rates may pose a concern. That's certainly something to consider when planning for the future and deciding on which type of funding is best for you and your loved ones.

Just like any other funding option, hard money loans aren't perfect. You must keep in mind that lenders may use more conservative methods to evaluate your property than you'd expect. Combined with the expensive fees, hard money loans need to be carefully thought about before signing on the dotted line. If it seems feasible for you, and you've met with a reputable hard money lender and read through everything, then you should know what to expect and hopefully have success with your loan in the future.

If you're interested in learning more about hard money loans and figuring out if they would work for you, then it's time to contact your local hard money lender today. They'll be able to help you further understand this funding and make the right financial move for you.

Sources: https://iop.harvard.edu/student-debt-viewed-major-problem-financial-considerations-important-factor-most-millennials-when

https://www.federalreserve.gov/data/mortoutstand/current.htm

https://hardmoneylendersonline.com/hard-money-loans

Why Hard Money Is A Great Option For Investment Property Loans

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Home flipping has become increasingly popular again over the past few years. Real estate investors shunned it as a result of the Great Recession, but they are now once again cautiously optimistic. In fact, according to a report by Attom Data Solutions, 2017 was an 11 year high.

ATTOM Data Solutions, curator of the nation’s premier property database, today released its Q4 and Year-End 2017 U.S. Home Flipping Report, which shows that 207,088 U.S. single family homes and condos were flipped in 2017, up 1 percent from the 204,167 home flips in 2016 to the highest level since 2006 — an 11-year high.

There Is Money to Be Made in Home Flipping

The total amount spent on flipping was $16.1 billion in that year. All real estate investors know that it can be very difficult to get a loan for an investment property and that it is vital that the loan is right. In fact, this can be the difference between failure and success. This is for anyone who wants to get involve in flipping properties or investing in these properties and become a landlord.

Many of us like the idea of making extra money. Who doesn’t want a little more cash in their pocket each month? Becoming a landlord is a nice way to earn some passive income, but not everyone can afford to buy a new place or purchase an apartment building.

There are numerous options available to you if you want to get a loan for an investment property. Traditional banks continue to be not cautious, however, which means you will have to do a little bit of research into other potential financing options. They include home improvement loans, home equity lines of credit (HELOC), cash out refinance options, partnerships, seller financing, FHA loans, personal loans, and hard money loans.

All About Hard Money Loans for Investment Properties

When people want to get a mortgage for an investment property, they often consider the traditional lenders, i.e. banks, first. However, since banks continue to decline applications for these types of properties, investors must become a little bit more creative. House Heroes is a Florida based house flipping startup business who is looking into hard money loans instead.

We’ve been buying property in Florida for over 5 years. We help homeowners sell in all sorts of situations: sell fast, major renovations, inherited house, relocation, foreclosure, eviction, late taxes.

Hard money loans are incredibly popular with home flippers. It means that money is borrowed from a business or individual and this money is used to fund a real estate investment. While a non-traditional type of loan, it is often possible to borrow more than the sale value of the property. This means that money remains available to upgrade the property, which in turn means an investor can sell it rapidly. Of course, this is a gamble as it is necessary for the property to then sell for more once it has been upgraded, eventually leaving the flipper with a profit. Ideally, the profit is then used to fund part of the next property, and so on.

However, it is common for hard money lenders to want to see an investor have some money to their name as well, usually at least 20% of what they hope to borrow. Additionally, in return for a quick and easy application process and a willingness to take risks, borrowers do have to pay a much higher interest for the loan. This is understandable, since a hard money loan is private money and people would only agree to put some of their money at risk if the gain is large enough. Additionally, provisions are in place that enable hard money lenders to rapidly repossess a property if payments aren’t made.

Hard Money Direct Increases Your Financial Power

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Obtaining money for an upcoming project can be hard if you choose the traditional route which utilizes a bank or credit union. It can mean a lot of time spent sitting in an office, signing too many papers, and playing a waiting game that you may lose. An exciting discovery for businesses and individuals looking for a loan is there is another way.

Hard money loans are unique in that they allow individuals and businesses to receive a loan when they would have been rejected by a traditional lender. This type of loan does have cautionary characteristics but still stands strong as a way of increasing your financial power. According to the chief economist of Lending Tree, “If you’re not able to access a traditional loan, then maybe there’s an opportunity here.” For the estimated 68 million people who have bad or low credit scores, according to Vantage Score, this opportunity could not come at a better time.

Let’s take a deeper look into three ways to increase your financial power with a hard money loan.

Streamline the Process

No one likes to spend their free time in an office waiting for answers. Traditional lenders, such as banks and credit unions, are basically playing the middleman of the loan process. In essence, you must talk to a loan officer who then talks to the bank. This “conversation” can take weeks. Underwriters must construct your loan portfolio and write out the terms. This all sounds complicated, right?

In order to gain financial power, take out the middleman. Take control of what you need and how you get it with a hard money loan. Because you will be doing business with the lender themselves, there are no waiting periods to deal with. No, let me call the corporate office. No time spent waiting on underwriters.

Paperwork is another area which can get cumbersome. Hard money lenders will have this down to a science. There are fewer restrictions, therefore, requiring less documentation. In layman’s terms, hard money lenders are more concerned about the collateral than the documents. A fine-toothed comb is not needed in this process.

Flexibility with Hard Money Loans

Everyone needs flexibility in their lives. Why should this be any different in your finances? Hard money loans offer flexibility in which the receiver of the funds can determine how long they need to repay the loan. Because you are dealing with the lender themselves, there is some leniency with the terms. Most lenders allow for repayment times which range from 12 months to five years.

The ability to have a voice in your financial present and future is vital. It gives you the power to negotiate the terms. There are no requirements on terms, leaving you freedom and flexibility.

Financial Leverage

As we have already established, a hard money loan is a way to obtain money quickly for individuals and businesses. This is especially true for real estate entrepreneurs. For example, flipping houses have become big business in the past decade. To flip a house, one must be bought quickly, remodeled, and then sold. Since fabulous deals don’t hang around long, buyers need to snatch them up quickly. With a hard money loan, flippers have a way to get the money they need quickly and on a short- term basis. Long term this could mean more profit in their wallets and better chances of continued success.

Bottom Line…

We all need help from time to time. Sometimes we need help paying the bills or making our dreams come true. When times like these arise, it should not be hard to get help. It should not be difficult to find a way to stand on our own two feet.

Hard money loans are a unique way to get the help we sometimes need. They allow individuals and entrepreneurs to streamline the process, have flexibility, and use leverage. Hard money just makes sense. If you have collateral or assets, then you can take advantage of these loans. They are definitely worth considering. In order to obtain a hard money loan, contact a lender and begin living your dreams.

References

Prittchard, Justin. The Balance. n.d. https://www.thebalance.com/hard-money-basics-315413.

Wiebe, Jamie. Magnify Money. n.d. https://www.magnifymoney.com/blog/mortgage/the-pros-and-cons-of-a-hard-money-loan/.

Residential

Hard Money Residential Lenders On The Rise

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Hard money lenders have definitely found their niche in the real estate industry. This unique form of loan is extremely common in the residential housing arena. But why are we seeing an uptick in the number of lenders taking part in the action?

Unlike traditional mortgage loans provided by banks, hard money lenders use the value of the property as collateral against the loan. These lenders aren’t as concerned with a person’s credit history. Instead, they focus on the value of the home and the borrower’s equity. Although this may seem like a risky venture, many individuals and small companies are getting into hard money lending.

To get a better idea of why these types of lenders are on the rise, it helps to know who stands to benefit from them the most. The answer is real estate investors and homebuyers who can’t qualify for a traditional mortgage loan.

Let’s take a look at the benefits of hard money loans along with the people going after them to get a better understanding of why they’re so popular right now.

Benefits of a Residential Hard Money Loan

We mentioned the fact that hard money lenders don’t place as much importance on a borrower’s credit history when considering them for a loan. This is a huge advantage over a traditional bank loan, in which a person’s credit score has a direct impact on whether or not they get approved.

However, there are a number of other advantages that make hard money loans attractive. Some of the primary benefits to borrowers include:

  • The process of applying for and receiving the loan is quick and easy.
  • Investors can purchase residential property without having much money to begin with.
  • Borrowers have more freedom to negotiate repayment terms.
  • Hard money lenders will typically consider any type of property.
  • Flexible down payments.

Although there are some downsides, such as higher interest rates and lower loan-to-value ratios, they still provide exciting opportunities for people needing quick capital. Real estate investors and homebuyers have made hard money a lucrative business for lenders looking to expand their reach in the real estate market.

Investors and House Flippers

According to stats collected by ATTOM Data Solutions, 49,059 single-family homes were flipped during the first quarter of 2019. Surely all of these investors didn’t have the capital they needed to purchase, renovate, and flip their homes. Instead, they went to a hard money lender to fund their projects.

House flippers like these loans because they’re easier to qualify for than bank or FHA loans. In addition, they can acquire the funds quickly in order to make timely bids on homes they feel would be smart investments. A traditional loan simply takes too long. Furthermore, because house flippers typically renovate and sell their investments quickly, they’re able to adhere to the shorter repayment periods of hard money loans.

Long-term real estate investors also tend to work with hard money lenders to secure the capital they need to complete renovations on a piece of residential property. Often, they need to do this before refinancing in order to get a new mortgage.

Residential Home Buyers Need Fast Cash

Ray Brown was right when he said, “The best time to buy a home is always five years ago.” Residential prices are up from last year. According to the Federal Housing Finance Agency, home prices rose 5.2% from April 2018 to April 2019.

This is bad news for home buyers, especially if they can’t qualify for a loan. Many families are now having a hard time securing mortgage loans from banks with high standards when it comes to credit scores.

Many, however, are turning to hard money lenders to help them buy their first home. Because the lenders are more concerned with the value of the property attached to the loan, a buyer with poor credit history still has a chance.

Furthermore, many homeowners who are facing foreclosure are opting for hard money loans to help them refinance their mortgage. As long as they stick to their repayment terms, they can continue living in their homes.

Regardless of whether you’re looking to get into the lucrative business of house flipping, or simply need a quick loan to buy your first family home, a hard money lender can help. The opportunities they offer simply aren’t possible with transnational home lenders.

Resources:

https://www.attomdata.com/news/market-trends/flipping/q1-2019-home-flipping-report/

https://www.fhfa.gov/AboutUs/Reports/Pages/House-Price-Index-Report-April-2019.aspx

6 Key Awareness Points Before Borrowing Private Money

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A lot of people are interested in taking out hard money loans, particularly if they want to purchase a fix and flip property or a rehab property, which banks won’t usually lend against. Indeed, there has been a significant increase in interest in these types of loans, which are usually taken out for around a year. Using such kind of private money is a great way to build a real estate investment portfolio, but it is important to research whether or not it is an appropriate solution for you. Below are 6 key factors to consider.

1. Make Sure You Choose the Right Lender

You should never simply pick the first lender you come across. Instead, there are questions to ask and considerations to make.

When you want a loan on a short term basis without much documentation then this is the best option. Private money lending is famous for the convenience it avails to persons who require financial funding but may fail to meet the threshold of banking institutions. Bearing in mind the minimal formalities, it brings about risk in dealing with such transactions as you also don’t want a fraudulent money lender to take advantage of you.

Make sure that your lender has experience in the type of deal you are interested in. If you want to fix and flip an industrial property, for instance, find a lender that has successfully invested in that before.

2. Understand Your Financial Role in the Flip

A lot of people like the idea of fixing and flipping because they think they can make a lot of profit. This is also due to television programs that make it appear like such an activity is a lot of fun. However, to do so successfully, you need a lot of expertise and experience and you have to be able to handle the risks involved as well.

3. Try to Help Build Communities by Investing

When you take out a private money loan, you actually invest in a neighborhood and that is a significant responsibility. The money will be used to improve a local area, boost business income, create jobs, and more. When you invest like this, you will see tangible improvements unlike what you would see when buying stocks and bonds. Your lender, therefore, should have a vested interest in the community as well.

4. Don’t Worry If You’re Not Rich

When people think about real estate investors, they often think of property tycoons like Wang Jianlin.

Wang Jianlin, a 1954 born Chinese businessman and philanthropist, serves as the chairman of the Dalian Wanda Group, which is also China’s largest real estate company, as well as the world’s largest movie theater operator. He owns 20% of the Spanish football club Atletico Madrid.

In reality, however, real estate investing is open to anybody, even if you need to get a hard money loan to fund your deals. Of course, you should never put all your eggs in one basket, so you have to find a balance between how much of your own money you can put in, and how much of a private money loan you will need to get.

5. Remember That You Will Have Tangible Assets

Getting a private loan means that you will invest in a material asset. The hard asset is the collateral for the loan, and it is also from this that it gets its name: ‘hard’ money lending. Owning property is a serious commitment that you have to be ready for and you must also understand that tangible assets are often slower to turn into a profit. But when they do, the profits can be substantial.

6. Have Realistic Expectations

Last but not least, it is important to understand that you will not go from being a first time investor to being the President of the United States. Even Donald Trump had to go through several steps before achieving that. When you start at the bottom, the road to the top is long but satisfying.