What You Need to Know About Hard Money Lending
Real-estate investors are always in search for ways to get funding for their projects. One option is hard money lending, which can be a great option for those who need quick funding and understand the associated risks with this type of loan.
What is Hard Money Lending?
Hard money lending is a type of loan that is secured by real estate assets. In simple terms, these loans are secured by the real estate property itself and the investor acts as the lender. It is a form of short term capital with an expected repayment schedule of one to five years.
Advantages of Hard Money Lending
There are some advantages of pursuing hard money lending for real estate investors.
Fast turnaround time — One of the biggest advantages to hard money loans is the speed of the lending process. A hard money loan can be secured in a matter of days, allowing investors to act quickly on potential deals.
Flexible loan terms — Hard money lenders are usually more flexible when it comes to the loan terms. They are more open to creative endeavors such as renting or lease-options.
Low upfront costs — In contrast to traditional lending, hard money lenders usually require much less in the way of upfront fees and closing costs.
Disadvantages of Hard Money Lending
Although hard money lending can be beneficial for investors, there are some disadvantages to be aware of.
Higher interest rate — Due to the higher risk of hard money lending, investors can expect to pay higher interest rates.
Potential for foreclosure — If a borrower fails to repay the loan on time, the lender can take action to foreclose on the property.
Poor credit won’t disqualify you — With traditional lenders, a poor credit score can disqualify you from being approved for a loan. However, with hard money lenders, this isn’t usually a deal breaker.
Conclusion
For real-estate investors, hard money lending can be a great option when needed. The primary benefit is the speed of the process and the flexibility when it comes to loan terms. However, borrowers should be aware of the higher interest rate and potential foreclosure associated with hard money lending.
It’s important for real-estate investors to do their research and make sure they understand the details and risks associated with hard money lending before entering into such an agreement.