Hard Money Loans For People With Bad Credit - Refi Guide

Published Nov 03, 21
3 min read

Hard Money Loans: What Real Estate Investors Should Know



Some hard money loans are structured as interest-only loans, followed by a large balloon payment. Hard money vs. soft money, They’re both ways to borrow, but the loans they secure are backed by different things. Hard money is usually secured by physical assets like property and its assessed value in the form of equity.

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Who should use a hard money loan? With typical repayment periods of one to five years, hard money loans are most suitable for short-term projects, such as when an investor expects to quickly fix up and sell a property for a profit. Others use a hard money loan to fund renovations on a property, then refinance to a conventional mortgage with a lower interest rate.

Hard Money Loans: What Real Estate Investors Should Know

“This expediency is beneficial when they’re bidding on a property. They will have the advantage over someone who might need a month to close.”Borrowers who don’t qualify for traditional loans, There are many reasons some borrowers don’t qualify for a traditional loan, such as a 30-year fixed-rate mortgage from a bank.

Hard money lenders tend to be flexible when it comes to negotiating loan terms. They don’t have to adhere to the same regulations that conventional mortgage lenders are subject to. Speedy funds, Compared with the glacial pace of traditional mortgage underwriting, hard money loans can be processed in just days to weeks.

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Don’t require strong credit history, You don’t need a good credit score or loads of financial documentation to get a hard money loan. While traditional mortgage underwriting focuses on borrower income and credit history, hard money lenders extend loans on the basis of collateral, such as a house or building.

The upfront fees are also expensive, and can be as high as three to five points or more. Closing costs are likely to be steep as well, and there is a significant down payment requirement. In addition, you may be charged a prepayment penalty if you pay your loan sooner than the term dictates, which can add to costs.

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How to find a hard money lender, Finding hard money lenders in your area can take a bit of work. Your first step should be to ask a local real estate agent for referrals. You can also check with any real estate investment groups in your town who are likely to have relationships with such lenders.

As the name suggests, a hard money lender is a non-traditional lender that gives consumers an alternative choice to access funds when the traditional sources like banks make it hard or difficult for them to get approved for ordinary loans. Simply put, hard money lending is a way to borrow money quickly without using traditional lenders or financial institutions.

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Typically, traditional loans require a lot of proof to demonstrate that you can repay the money with ease. In these kinds of loan applications, lenders check your credit scores and your income to determine if it is worth it for them to risk lending their money to you. If you have a pretty good track record and a solid history of responsibly settling your debts, then the approval rate is higher.

That being said, the process to apply for this kind of loan is very tedious because of all the documentary requirements you will have to submit. It takes quite a bit of time to gather this data. On top of that, once the application has been lodged, banks and other financial institutions also need more time to study your documentation for approval.

What Is 'Hard Money' In Real Estate Investing, And How Does ...

If you need money quickly and time is really of the essence, then consider getting a hard money loan. Hard money lenders employ a different set of parameters in evaluating your case. They lend you money based on the collateral you give, which is why hard money loans are usually ideal for real estate transactions like house-flipping deals.

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