The Pros And Cons Of Hard Money Loans

The Pros And Cons Of Hard Money Loans

Hard money loans are also commonly used for fix and flip properties. These investors may be less worried about higher interest rates because the end goal is to sell the property for a profit once the rehab is finished. Hard money loans make a perfect fit because they can be used to purchase properties and make renovations.

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I maintain that hard money loans represent one of the single most advantageous funding opportunities for investors to take advantage of. If any, few sources of capital can compete on the same level as hard money and offer the same competitive edge. It is hard money loans, after all, that many investors have to thank for acquiring their deals in the first place. That said, hard money is not without its own caveats. Despite its superior benefits, there are downsides to hard money that warrant the consideration of every investor.

Let’s take a look at the pros and cons of hard money so you can weigh the pros and cons yourself.

Speed: The Dodd-Frank Act is a financial reform legislation enacted in the past e with new regulations on mortgage lending, which means a lot of time (often, months) is needed for an investor to close a loan. On the other hand, hard money lending is fast, as you can secure a loan in days or weeks (depending on negotiations). Time is essential, especially for large development projects, and hard money lending can help speed that process along.

Flexibility: Terms can be negotiated with hard money lending loans, since you are dealing directly with individual investors. Banks are not as flexible.

Collateral: With hard money financing, the property itself is your collateral for the loan. Some lenders even accept other assets, like your retirement account or residential property under your name, as a basis for starting a loan.

No “Red Tape”: Getting a loan for an investment property with a traditional https://paydayloanstennessee.com/cities/parsons/ mortgage is difficult, if not impossible. However, hard money lenders function as asset-based lenders who are more concerned with the property than the borrower’s credentials.

Convenience: There is something to be said for the convenience of being able to close with cash. Having to supply a lender with bank statements, income documentation, tax returns, and leases can become overbearing and consume your focus and energy. Hard money, on the other hand, cuts out the middleman and a lot of the headaches.

Volume: Hard money lenders allow investors to leverage other people’s money. That means investors could potentially fund more than one deal at a time. If you want to fund multiple deals at a time, you should really consider a hard money loan.

Traditional loans will do no such thing

Competitive Edge: Hard money allows investors to beat out the competition, or at least those using a traditional loan. If for nothing else, sellers prefer the two things hard money offers: cash and a timely transaction.

Traditional borrowers need to worry about credit score, LTV ratios, debt-to-income, and several other indicators they need to meet criteria for

Cost: The convenience that comes with hard money lending may be its primary benefit; however, it is also its main drawback. Given that hard money lenders are at higher risk than borrowers, many may demand up to 10 percentage points higher than traditional loans. Interest rates range from 10 to 15 percent. Expect other fees to be also at a relatively increased rate, including origination fees and closing costs.

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