The Pros and Cons of Taking Out a Hard Money Loan Revealed!
With a hard money loan, investors and entrepreneurs can get quick access to funds when traditional financing isn’t an option. Learn more about the pros & cons, things to watch out for, fees, & risks associated with this type of loan:
If you’ve ever heard the phrase ‘hard money loan’ and had visions of quick cash deals coming to mind, then you’re on the right track. Hard money loans are special types of loans offered for commercial or investment properties that don’t come from traditional financial institutions, but rather from private money lenders or companies that accept the property or asset being used as collateral versus traditional banking underwriting based on personal income. Hard money loans offer a speedy financing solution which is great for real estate investors and developers. It is important to be aware of the Pro’s and Con’s on hard money loans.
Hard money loans are a type of secured loan backed by an asset, often used to purchase commercial or investment properties when traditional lenders are unable to approve a loan.
This type of loan, just like a traditional mortgage, is secured by the property it is being used to purchase, meaning if the borrower defaults on their payments, the lender can take ownership of the asset to recoup their losses. However, approval for a hard money loan comes without the lengthy process and paperwork associated with traditional loans and mortgages, making them a desirable option if “time is of the essence.” Generally, it takes more than a month from application to close when buying a property, but with a hard money loan, you can close in just a few days.
Hard money lenders typically have fewer requirements for borrowers, such as a credit history check or proof of income.
For traditional forms of finance such as mortgage loans and real estate loans, it is possible to obtain a hard money loan from private lenders that have lower credit standards than traditional banking institutions. However, these loans are often much more expensive, and the amount of money a lender is willing to loan depends on the loan-to-value ratio. This means that if the lender is only willing to finance up to 65% of the property’s value, then the loan-to-value ratio is relatively low. On the other hand, if the lender is willing to finance 80% of the property’s value, the loan-to-value ratio is much higher. With Hard Money Loans, the private lenders typically limit the loan-to-value (LTV) to 65% to lower the credit risk.
For investors that have cash available for a down payment and are having difficulty obtaining traditional financing, hard money loans can be a great option. That being said, this type of loan does come with increased risk and should be discussed with a financial advisor before committing.
When considering a hard money loan, it is important to understand all of the terms, conditions, fees and risks associated with taking out a loan and carefully weigh the pros and cons before signing on the dotted line. It can also be a smart idea to discuss your options with a mortgage professional, attorney, or CPA to ensure you are making the right decision for your unique financial circumstances.
Borrowers can expect to pay higher interest rates on hard money loans, usually 8-12%, plus bring some of their own money to the closing table.
Another key factor to consider is the interest rate associated with a hard money loan. Typically, these loans come with higher interest rates than traditional forms of financing and this should be considered when deciding whether a hard money loan is the right way to go. Additionally, because they are short-term loans, repayment terms can often be quite aggressive, with required payments due in a relatively short period of time. This can cause a burden if the property payoff or exit strategy is not taken into consideration during the decision-making process.
To be approved for a hard money loan, borrowers must also provide collateral that is typically in the form of a deed of trust, mortgage, or other real estate-based security. If a borrower defaults on their loan, the lender has the right to seize the collateral through the foreclosure process and use it to pay off the balance they are owed. So, hard money lenders will ensure that the collateral is sufficient to cover the amount of money borrowed.
Can Hard Money Loans Help You Out of a Financial Jam? Here’s What to Know.
One of the biggest misconceptions about hard money loans is that they are primarily offered for risky schemes or investments and are more expensive than other financing sources. While it’s true that hard money loan rates are often higher than traditional mortgage rates and the financial risk involved is greater, these loans can still be a viable option for those who need quick access to funds, such as real estate investors or entrepreneurs launching a new business.
Additionally, it is important to remember that hard money loans are not a long-term solution and are ideally used as a bridge to another financing source. Borrowers should be aware of how long the loan will last and make a plan to refinance in order to avoid defaulting on the loan and the potential for foreclosure.
Finally, it is important to maintain good financial records when taking out a hard money loan. It is essential to maintain an accurate record of payments including invoices, canceled checks, bank statements and other financial records. This information can help protect the borrower from potential litigation from the lender in case something goes wrong. Keeping good financial records can also help improve credit scores, which can potentially lead to better terms in future loan applications and executing on the exit strategy to refinance from a hard money loan.
Who is the Best Hard Money Lender Near Me?
It is also important to keep in mind that not all hard money lenders are created equal. Before making any decisions, it is important to do some research and make sure that you understand the terms, fees and conditions associated with any type of financing you pursue. Make sure the lender is properly licensed, experienced, and have a legitimate reputation for funding the type of deals you are looking for.
If you are looking for a hard money lender who can offer low rates, close quickly, and not require any income docs or a minimum credit score, Capital Funding Financial is the perfect hard money lender for you.
Capital Funding Financial specializes in asset based private money loans on non-owner-occupied investment properties nationwide particularly in states such as Florida, California, Georgia, Texas, New York, New Jersey, North Carolina, Washington, South Carolina, Massachusetts, Maryland, Virginia, among others.
Capital Funding Financial is backed by a Family Office with over 1,000 Single Family Developments built across the United States and over 250 million deployed in closed hard money loans.
If you are a real estate investor, developer, mortgage broker, or individual who needs a FAST, RELIABLE, & HONEST PARTNER for rental investment, commercial, or multi-family properties… Contact us today for a complimentary consultation.
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Hard Money Lending Parameters:
| CLOSING TIME | 7 – 14 days |
| LOAN SIZE | $100,000 to $25,000,000 |
| LTV | Up to 80% LTV |
| LTC | Up to 90% LTC |
| LOAN TERM | 12 to 24 months |
| INTEREST RATES | 6.99% to 11.99% |
| AMORTIZATION | Interest-only payments |
| ORIGINATION FEES | 1.50 to 3.50 points based on location and property, LTV, credit worthiness of the borrower, loan amount and term. |
| LENDING AREAS | Nationwide with the exception of a few states |