Hard money loans are a great way to fund your projects. Whether you are looking for funds to start your project or you need emergency funds to finish one, hard money loans are a way to go. You might hear from beginner investors that these loans are not a great idea because of the high rates. On the other hand, veteran investors will tell you otherwise. Private money lenders will give you a hard money loan when for example, a bank might turn you down. Banks have a long list of loan eligibility requirements that you have to cover before even attempting to get a loan. This can prove quite troublesome for investors as they need the money fast. Getting the loan in a timely manner will help you close the deals faster. This way you can get ahead of your competition which is really important. By covering everything you should know about them, we will help you make a decision. So if you are looking for a hard money loan, we recommend you stick around.
Requirements For a Hard Money Loan
When it comes to hard money loans, the requirements are quite simple. Compared to the banks and other similar institutions that provide loans, private lenders do not look for as many requirements. So, in most cases, you will get a loan from a private lender that a bank would turn down. As we already mentioned, banks have a long list of loan eligibility requirements. On the other hand, private money lenders only look for a few things before they give you a loan. First, you will need some cash beforehand. They will require that you have enough funds to make sure you will be able to make the monthly payments. Second, they will ask for a percentage of equity from the value of the property that you own. Finally, last but not least, due to the high-risk factor, they will require a few exit strategies to secure themselves.
That being said, if you can provide them with everything they ask for, you will get your loan without any problems. So when you compare these requirements to the ones that the banks have, hard money loans are better for investors. As an investor, you need the money fast so you can start projects and turn them into a profit. For example, Fix-and-Flip projects require investors to act fast. The strategy for this project is for an investor to buy a property as soon as possible with a short-term loan. By doing this, they can renovate the property and sell it off within a year for good profits. Because of this, banks will not lend you a loan as the period is too short for them. This can be quite troublesome if you need the money fast. Hard money loans are made just for that.
Get a Loan Fast
There is nothing worse than waiting for a loan when you have available projects at hand. What puts hard money loans above the rest is how fast you can get them. To get a hard money loan, you can expect to wait for less than a week. In some rare cases, they can even be processed in a single day. As we said, private lenders do not have many requirements. So if you cover all of them, your loan will be approved in next to no time. They are a great alternative if you ever get turned down by a bank or some other lender last minute. Because of that, hard money loans can help you get out of emergencies and continue on with your projects.
Risks That Come With Hard Money Loans
As with everything else in life, there are some risks that come with hard money loans. It is obvious that no matter the type of loan, there will be risks you need to take. The first thing that you should know about hard money loans is that they have higher interest rates. No matter what, they will always be higher than the rates provided by the bank. The reason is quite simple. By providing you with a fast loan at a time when you need money fast, lenders take a big risk. The second one is that you are required to put a down payment. Providing you with a loan extremely fast, even if there are some issues, the lender will require a down payment from you. This is usually about 20 to 25%. If you do not have the necessary funds to make a down payment, you will most likely not get a loan. Lastly, hard money loans only come in short terms. This is usually 1 to 2 years. This is again because of the high risk. The longer the period, the higher the risk for the hard money lenders.