Hard money loans, also known as bridge loans, are short-term lending products that investors in real estate can utilize to finance investment projects. This product is an ideal tool for real estate developers or house flippers whose objective is to develop a property or renovate, then dispose at a profit. Private lenders give these loans as opposed to traditional lenders such as banks.
Unlike conventional bank loans, a borrower’s ability to get hard money financing is not determined by his or her creditworthiness. Hard money lenders look at the value of your property to decide whether to advance you the loan. In most cases, lenders consider the “after repair value,” which approximates the property’s worth once the development or renovation phase is complete.
The advantages of hard money loans over conventional bank loans
The following are some benefits hard money loan option provides to borrowers.
- Convenience: The new regulation regarding mortgage lending makes applying for a bank mortgage time-consuming. It might take months to get a conventional loan, which can cause investors to lose a particular investment. Hard money lenders can approve a loan in a matter of days.
- Flexible lending terms: Since private lenders give these loans, there is more room for negotiating the lending terms. One can tailor the repayment schedule to his or her needs or have specific fees eliminated or reduced.
- Collateral: In hard money lending, the property normally serves as security for the loan. However, leaders can allow borrowers a leeway here. For instance, some lenders may allow one to have the loan with personal assets, like a residential property or a retirement account as collateral.
All in all, these loans are ideal for wealthy investors who require money for an investment quickly. When assessing hard money lenders, you should look carefully at the interest rates, fees, and loan terms.