What is a hard money loan and what advantages does it have for real estate
What is a hard money loan and what advantages does it have for real estate
Typically, when you lack money to buy property, what you do is turn to banks, mortgage companies, or credit unions for financing. But ever since the 2008 housing crisis had struck, traditional lenders have tightened their qualification criteria. These days, you need to have an excellent credit score of 740 and more, a stable job, no less than 6 months of liquid reserves, and a low debt-to-income ratio to have even a chance to obtain financing for your goals.
And if you are not able to meet these strict demands, you have only two options:
Pay the full sum in cash.
Turn to private lenders.
What is a hard money loan and why is it called like that? It has nothing to do with being difficult to get. The term is related to real estate, which is considered a hard asset.
What is a hard money lender? These type of lenders view the collateral equity in the property as more important than your credit score. The tighter qualification criteria for bank loans became, the more popular hard money loans became. Sure, they come with high risks such as marginal credit and low credit scores. But they also come with much higher interest rates. And it is easy to qualify provided that you have a down payment or 30-50% equity.
TOP benefits of hard money loans
High turnaround
A traditional loan takes 30-45 days to process before you can see the money. With hard money loans, it is 7-10 days.
Fair underwriting
Hard money loans are based on ARV (property’s after-repair value).
High returns
Hard money loans involve high interest for a short period of time which is risky. On the other hand, it is a minor expense comparing to the high returns an investor can make – 7-10% (with only 1-5% returns range in traditional investment).
Hard money lenders consider the borrower’s ability to repay the loan. Borrowers not able to make the payments are likely to lose their property through foreclosure, so the lender wants to make sure that there is little risk of that happening. This due diligence prevents predatory practices
The Evolution of hard money loans
The mortgage industry seems to go through a change every two years since the housing crisis. This can be attributed to many reasons such as the expansion of the customer base and technological development.
The popularity of home-flipping reality shows on television has given birth to a new trend called private money lending. Among the many benefits of hard money loans, there is the promise of getting high profits passively. It doesn’t have to be an active career to make big money – you can just as well do it on the side and still receive the same income.
Are you wondering how to get a hard money loan? Check out the Renew Capital team! We are Los Angeles lenders who believe in educating and explaining the loan process so that you become an equal partner in building your successful future.
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What is a hard money loan and what advantages does it have for real estate
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