Traditional loans have their purpose, but for real estate investing, you might need a faster or more tailored financing solution. Hard money loans let you get the cash you need quickly, so they’re a great choice for certain circumstances.
This article will explore the benefits of hard money lending for quick financing.
What is Hard Money Lending?
Hard money loans are short-term loans provided by private lenders who focus more on the value of the property you’re using as collateral rather than your credit history. That means you can get approved for the loan faster, often within weeks or even days.
3 Benefits of Hard Money Loans
Here are the key benefits of using hard money loans for your real estate project:
Fast Funding
The biggest perk of applying for a hard money loan is speed. Unlike traditional loans that can take weeks or months, hard money loans can close in a matter of days. That means you have a quick solution in situations where you need cash quickly, such as:
- Fix-and-flip projects, allowing you to snatch up properties before they disappear and get your renovations rolling fast
- Distressed property purchases, meaning you don’t have to miss out on a great deal because of slow traditional loan processing
- Unexpected expenses; for instance, you might need to make a major repair or fund an unexpected opportunity.
Flexible Terms
Another big benefit of hard money loans is that they often have more flexible terms compared to loans from traditional banks. For instance, while a traditional lender might require a fixed monthly payment schedule, hard money lenders might be happy to structure a repayment plan that starts with interest-only payments, followed by a balloon payment at the end of the term.
This can be helpful if you have a non-standard situation, as is often the case with real estate. As long as you can prove that you’ll have the grounds to pay the loan back, you should have more flexibility in its terms.
Focus on Asset Value
Finally, hard money lenders focus on your asset value and not your credit score, so even if you struggle to get approved for traditional loans, you’ll still have a shot with hard money loans.
Your credit score might not be perfect, but if you have a valuable property, a hard money lender may still consider you.
Is a Hard Money Loan Right for You?
Hard money loans can be a great tool for real estate investing, but that doesn’t mean they’re right for everyone. If you need cash fast and have valuable collateral, they make a lot of sense (and can often be a lifesaver!).
However, these loans have higher interest rates and shorter terms, which means you’ll need to have a careful plan in place to avoid facing a situation where you can’t afford to pay.
It’s best to discuss your situation with a financial advisor if you have any doubts or concerns. They can help you weigh the pros and cons of a hard money loan and ensure it’s the right fit for your needs.