Hard money loans offer an alternative financing tool without using a traditional mortgage lender.
Many investors do not want to endure the rigors of taking a traditional loan for a property they intend to “fix and flip” or repair for rental income. Instead of a bank, individuals or investment companies lend money using the investment property you want to buy as collateral.
What is a Hard Money Loan?
Banks issue standard loans, and they check your credit history and income or ability to repay the loan. They also prefer that you do not have much outstanding debt.
Traditional loans can be a time-consuming process even if you have stellar credit and borrowing history. Lenders take even longer to make a decision if you have any blemishes on your credit report. In the end, the bank might not approve the loan.
By contrast, hard money loans are relatively fast transactions. Hard money lenders are less concerned about repayment, your credit history, and income. Instead, it focuses primarily on the real estate investment’s value. If you default on the payments, they assume ownership of the asset and liquidate it to repay what you borrowed.
Typically, hard money loans are for short periods, like from one to five years, rather than 15 or 30 years. After a few years, the interest from hard money loans can add up.
What Are The Benefits of Accepting a Hard Money Loan?
Real estate investors seek hard money loans because of how fast they can receive funds.
Imagine you just found a 10-unit apartment complex that was very underpriced and wanted to jump on the opportunity. A traditional loan would take too long, and you’d probably lose the deal.
If you have a good relationship with a hard money lender, a quick phone call could probably help you close the deal in a few hours or days.
Hard money loans also tend to be more flexible than traditional loans through banks. Because you’re working with individuals or capital financing organizations, they are more likely to let you change payment schedules or amounts.
Hard money lenders don’t have to submit requests to an underwriter who reassess the risk of changing your payment terms. They can make the decisions themselves.
Finally, a hard money loan gives you an advantage because you can receive approval much faster. Since your collateral vouches for your loan rather than your personal financial history, lenders see less risk with the asset. Some lenders may not even question your credit.
What Are the Drawbacks of a Hard Money Loan?
The primary drawback of using a hard money loan is that they have higher interest rates than traditional loans. You also pay more fees to work with private lenders.
Without a good relationship with a lender or burning a lender on a bad deal, it may be challenging to find someone to work with you in the future.
If you live in a rural area, you might need to work with a hard money lender in another city or state.
Get started today by submitting your loan request or call 619-349-1831 to speak with a bridge loan expert.
Loans are made or arranged by Wilshire Quinn Income Fund, LLC (the “Fund”) pursuant to California Finance Lenders Law license #603J060. The information contained above is for informational purposes only and is meant to provide general background information on the Fund and its manager, Wilshire Quinn Capital, Inc. Any and all information is deemed reliable but is not guaranteed.