In previous blogs we discussed what a hard money loan is, we discussed other types of loans, and we discussed what type of loan suits your needs. In today’s blog, we will be discussing why you would need or want to use a hard money loan.
Hard money is expensive, so why would you use it? Hard money has its place for certain borrowers who cannot get traditional funding when they need it. Let’s break it down more.
Speed: the lender is mostly focused on collateral so hard money loans can be closed quicker than traditional loans because they typically aren’t concerned with your financial position. Once you have a relationship with a lender, the process can move quickly, giving you the ability to close deals that others can’t close.
Flexibility: hard money agreements typically are more flexible than traditional loan agreements because lenders don’t use a standardized underwriting process. Instead, each deal is individually evaluated. Depending on your situation you might be abler to tweak things like the repayment schedules. You most likely will be borrowing from an individual who’s willing to talk- not some large corporation with strict policies.
Approval: the most important factor for hard money lenders is collateral. If you are buying an investment property, the lender will lend as much as the property value. Typically you will borrow against a different property you own, that property’s value is what the lender cares about.
Most hard money lenders keep loan-to-value ratios (LTV ratios) pretty low. You’ll need assets to qualify for a hard money loan. With low ratios, lenders know they can sell your property quickly and have a reasonable shot at getting their money back.