Hard money funding is one of many financial aspects you should be aware of, as this form of funding may come in handy for you when you least expect it.
Before delving into hard money funding and whether or not it’s right for you, it’s important to understand what exactly hard money loans are and what they can do for you. This specific form of asset-based funding is when a borrower receives money secured by real estate and property. Usually issued by private investors or companies, hard money loans are typically short-term with higher interest rates.
As a businessman and financial guidance extraordinaire Dave Ramsey once said, “You must gain control over your money or the lack of it will forever control you.” This rings true for situations involving hard money funding. After all, you have to be confident and in control of your finances in order to ensure this borrowing agreement benefits everyone. Here are some of the important things you should know about hard money funding and the borrowing basics. With this knowledge, you can decide whether or not this is a funding avenue you want to pursue.
Fast Flexibility with Hard Money Funding
Let’s start with how hard money loans offer a refreshing alternative to tight traditional funding methods. There’s plenty of people out there who unfortunately have been turned away from banks and mortgage lenders to do poor borrowing capacity. Data from a LendEDU study found that 76% of people who apply for a personal loan are rejected, with a low credit score being one of the main factors. The average FICO credit score of an approved applicant was up around 741, while the average American falls short with a credit score of just 687.
That’s where hard money funding comes into play. Borrowers who are turned away from traditional lenders often find success with hard money loans instead, as long as they have the real estate/property investment to back them up. The process of receiving a hard money loan is quite short compared to lengthy bank applications. Plus, the terms of the loan are often suited for a quick turnaround. The majority of hard money loans are used for real estate endeavors such as house flipping. These are cases where you purchase a property and are quite confident you’ll be selling it for a profit within a few years’ time.
If you’ve been looking long and hard for the perfect property, and you’ve finally found it but now you need the money to get it into your name, hard money financing could suit your needs. Whether traditional loans won’t work because you have a less-than-stellar financial history, or if the property you’re purchasing is in need of heavy repairs and won’t qualify for regular loans, hard money could save the day.
The Funding Process of Hard Money
Private investors or investor groups are fond of hard money funding, as they have greater flexibility and freedom to support individuals with their real estate goals. Essentially, private investors have more wiggle room to work with than a traditional funding provider. This means you can approach a hard money lender and pursue your loan options rather quickly. The main thing you have to remember is that hard money loans have higher interest rates than other loans. What’s great about it is you will likely be selling the property in the next few years for a profit that will allow you to pay off the loan as anticipated.
Real estate investors are intrigued by hard money loans because the loan value is actually based on the expected resale value of the property. This means you would be able to get a 100% loan for the purchase of the property and the cost of repairs. For owners who are falling into foreclosure, hard money funding can give them the chance to fix their credit rating or sell their property without the stress of the bank breathing down their backs. As with any lender, hard money lenders expect to earn a profit from your property. This means you want to ensure you can meet the loan obligations and that everything is written down accordingly. Working with a professional hard money lender with a proven track record is the right way to pursue your property goals in a trustworthy financial situation.
If you’re ready to further explore your hard money funding opportunities, it’s time for you to get in touch with a reputable lender who could help you. Exploring this path of funding is something you won’t regret, and it will open up new doors for a bigger and brighter future for you.
Brown, Mike. “The State of Personal Loans in 2018.” LendEDU, 31 May 2019, lendedu.com/blog/state-of-personal-loans-in-2018/.
Sweatt, Lydia. “19 Wise Money Quotes.” SUCCESS, 22 Mar. 2019, www.success.com/19-wise-money-quotes/.