For most people, buying an investment property to rent or sell for a profit means securing a loan first. Most traditional mortgages have the rule that the owner occupies the purchased property which closes the opportunity of funding for most estate investors. This is where hard money loans come into play which has been around for many years just like real estate.
It’s a specialized financial tool used by savvy investors. The best aspect is that using this loan is not as dangerous as it’s portrayed to be. It provides the necessary funding required for acquiring a property. This article will explore some of the enticing benefits of hard money mortgages and how they differ from traditional loans. Keep reading to scope out how this loan type can be the right fit for you.
- Quicker Closing Times
One of the benefits of a hard money fund is that it provides quick closing times. For instance, if you want to purchase a home on a time sensitive limit, you can get the necessary findings from a private lender within 24 hours, two or three days. This is in contrast to bank loans that require at least a week of processing which can cause you a great deal.
- Greater Funding
Banks assess loans based on the standing value of the property you want to acquire. For instance, if you want to buy an outdated building in a prime location you may need more than one loan to make the purchase. This is different from what hard money loan lenders look at, they consider the property’s value after you renovate it, you get to access the funds generously.
- More Flexibility
Hard money mortgage lending can be a perfect solution for people that like calling the shots. Private lenders have a few restrictions and can alter their loan terms based on external factors that differ from one borrower to the other. Hence, this can provide you with an excellent opportunity to leverage your negotiation skills and secure a good deal.
- Multiple Project Funding
Creating a good relationship with a lender can give you the advantage of managing different projects at a time. If you are the type of person that loves to multitask, you can apply for many of them to fund different projects and improve your profit margin faster.
- Collateral Backing
This funding method has the advantage of utilizing a property as collateral. Meaning, you won’t be declared bankrupt in case you fail to repay. The lender will just seize the property, and you will have to relinquish all rights to it. On the positive side, this will absolve you from having to pay back the capital.
Difference between Hard Money Mortgage Loan vs. Traditional Mortgage Loan
- Funding Source
The main difference between this lending method and traditional mortgage lending is the funding source. Hard money loans depend on private investors, lenders and other funds while traditional loans use cash from a pool for high-risk ventures. Traditional loans have more restrictions compared to hard money loans.
- Time Limit
Another difference between these two loans is the time limit. Funding source is usually the main factor that determines the loan structure. Traditional loans have more backing, that’s why they can extend their time limit up to many years.
Private lenders on the other hand are more interested in short-term profits, that’s why their loans are short-term and with high interest rates. If borrowers miss their payment schedule, it can be a setback for some private lenders. That’s why it’s essential to choose the right lender to secure the best deal and protect the property you acquired.
- Eligibility Requirements
Some traditional loans have many guidance regarding cash lending, and such individuals are likely to reject proposals especially from small business owners, entrepreneurs and first time homebuyers who are considered high risk borrowers. This is different from hard hard money lenders because they are in it for profit and are less likely to reject proposals unless the borrower is grossly unfit.
So even people with bad credit scores can easily and quickly get a hard money loan quickly.
Loan Terms and Estimations
Traditional and bank loans have different terms and estimations. For example, banks can provide a long-term lending with low interest while traditional loans might have a ticking repayment terms. But still they are more willing to use after repair metrics which enable buyers to borrow against their potential revenue after completing a renovation.
Conclusion
Hard money loans allow you to own that property that you really want to have. It’s a deal that closes within a short time, provides greater funding, offers flexibility, and gives you the ability to fund different projects at a time. It differs from traditional loans in terms of eligibility request, time limit, loan terms and estimations.
