A hard money loan can be a real game changer if you're hoping to get into real estate and expand your investment portfolio.
An alternative to traditional funding, hard money loans are asset-based. This means borrowers receive loans based on the value of their property. In a country where the real estate market is rising – there were 679,000 new single family homes sold in the first quarter of 2019 in the United States – many people want to cash in on this opportunity. In the last few months, the country's spending on private residential construction work surpassed an estimated $507,231 millions of dollars, and a considerable portion of that could be attributed to home renovators and flippers. Hard money loans offer a great chance to get in the housing market. This is true even if your borrowing history is less than perfect.
What are the Benefits of a Hard Money Loan?
Investing in real estate can be a fantastic and fulfilling endeavor. However, in order to do so you will need some capital. You can't invest in properties if you don't have the funds upfront. That's where hard money lending comes into play. There are many benefits associated with this form of funding. Essentially, hard money loans are awarded based on the value of the property you're purchasing, rather than your credit score and credit history. Generally speaking, people who have been rejected on loan applications through more traditional funding sources such as big banks and mortgage lenders may see success with hard money funding. The application process tends to be easier and more straightforward.
Other benefits of a hard money loan include a quick approval process. If you find a property that you're eager to invest in, you won't be waiting around long once you submit your application for hard money funding. You're much more likely to be approved for this loan compared to asking the bank or a mortgage lender for money. There's plenty of people out there just like you who have wanted to make some exciting real estate moves but have found themselves stuck financially. Hard money loans can be a solid solution that gives you the financial freedom to invest in the right real estate project for you.
Why do People Choose Hard Money Loans?
Last but certainly not least, another reason why so many people are enthusiastically turning to hard money loans is that there are less requirements and restrictions on this funding. You won't have to answer a million questions about your financial situation and your past credit mistakes. Instead, hard money lenders will be looking more closely at the property you plan to buy. The value of this property is very important. Hard money lenders just need to make sure that your investment makes sense. They will also want to know that you will be able to pay back the loan.
How Can You Get a Hard Money Loan?
Hard money loans are extremely helpful for those who want to get into real estate but may not have access to traditional forms of funding. Buying run-down properties and flipping them for a profit is thrilling and rewarding. This is especially true when you get your business blossoming with opportunities coming at you left and right. Whether you're just starting out in the real estate market, or you're a veteran who is ready to try something new, hard money lending could be for you. It's understandable that you may have some more questions, and luckily there are some fantastic hard money funding experts out there who would be happy to help.
In order to secure a hard money loan for your real estate investment, you should search for lenders in your area. Scheduling a meeting with these lenders is a good idea, as you can then have all your questions answered and get a better understanding of what you can expect with a hard money loan. You will also need to provide details on the property you wish to use the hard money loan for. What is the current value of the property and what work are you planning to do to the property to sell it for a profit in a few years time? By demonstrating your real estate plans, you'll be likely to receive approval for this hard money loan that could help you tremendously.
Who Offers Hard Money Loans?
There are some great hard money lenders who are trustworthy and fair and they offer an alternative avenue to funding. These are the types of funding companies that you should want to work with. As with anything, real estate is a huge investment, and it's important to make the best choice for you the first time around. It's likely that hard money loans are the ideal option to achieve your real estate ambitions.
What Else Should you Know?
As with any sort of financial agreement, you should do due diligence and research all your options before signing on the dotted line. While there are so many advantages associated with hard money funding, you also need to be aware of any possible drawbacks that could affect you.
This mainly revolves around interest rates, which are higher than traditional forms of funding. While a mortgage from the bank may offer interest rates somewhere in the range of 3-5%, with a hard money loan you'll be looking more so at interest rates around 8-11%. While these rates can of course vary depending on the lender, it's typical for borrowers to pay more interest on a hard money loan due to the conditions of funding. That being said, this won't matter too much if you stick to your plans of flipping the property and selling at a profit in a few years. Just remember that the interest rates will be higher, and this should factor into your financial planning. You'll also should be pretty sure that your plans for a profit will materialize, so that you end up in the black.
If you're ready to move forward with your real estate hopes and dreams, the next step is to contact a reputable hard money lender to get started on your application. Your next real estate investment could be much closer than you think!