Intro To Hard Money Loans

Are you seeking a loan to fund a real estate investment property, but struggling to secure financing through traditional banks? A hard money loan may be the solution for you. Welcome to our guide to hard money loans. In this article, we will explain what they are, who qualifies for them, how they work, what they can be used for, and how fast you can obtain one.

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What are Hard Money Loans?

Hard money loans are a type of short-term loan that is secured by real estate. Unlike traditional bank loans, hard money loans are funded by private investors or groups. Since they are not based on creditworthiness but rather on collateral, they are a popular option among real estate investors or those with poor credit. These loans are ideal for fix-and-flip investors who need to purchase property quickly but don't have the time to wait for the approval of a bank loan.

How Does a Hard Money Loan Work?

When you apply for a hard money loan, an investor or group of investors will analyze the value of your property as collateral to determine the amount of money that they are willing to lend you. The lender is generally more concerned with the value of the property than the borrower's creditworthiness. The property will act as collateral for the loan. Therefore, lenders can close these transactions much quicker than traditional lenders.

Who Qualifies for a Hard Money Loan?

Hard money loans are ideal for real estate investors or individuals who do not qualify for traditional bank loans. Although creditworthiness still plays a role, the overall value of the property and the borrower's ability to pay back the loan are the most important factors. Individuals with lower credit scores may find it easier to obtain a hard money loan compared to a traditional bank loan. Self-employed individuals or those who cannot provide proof of income may also be eligible for hard money loans.

What is the Duration of a Hard Money Loan?

The duration of a hard money loan generally ranges from 6 to 24 months, although some may be longer. These loans are intended to be short-term loans to finance the purchase and renovation of investment property before selling it for a profit. You will be required to make monthly payments throughout the life of the loan, and repayment is required by the end of the term.

What Can a Hard Money Loan be Used for?

Hard money loans are generally used for purchasing, renovating, or refinancing investment properties. They can be used for either residential or commercial real estate. Common examples include fix-and-flip projects, construction loans, bridge loans (used to bridge the gap between the purchase of a property and securing long-term financing), and renovation loans.

How Fast Can I Get a Hard Money Loan?

The timeframe for funding a hard money loan is much shorter than traditional bank loans. In some cases, funding can be provided within 48 hours. The timeline may vary, but you can typically expect to have your loan in around two weeks.