There are several good reasons to consider getting a hard money loan instead of a conventional mortgage from a bank. Here are the main benefits this lending option offers to investors:
- Convenience – Applying for a mortgage is time-consuming, particularly thanks to new regulations on mortgage lending implemented as part of the Dodd-Frank Act. It can take months to close on a loan, which puts investors at risk of losing out on a particular investment property. With a hard money loan, it’s possible to get funding in a matter of DAYS. That’s important if you’re funding a large-scale development project and can’t afford deviations from the timeline to completion.
- Flexible terms – Because hard money loans are offered by private lenders, it’s possible for investors to have more room for negotiation of the loan terms. You may be able to tailor the repayment schedule to your needs, for example, or get certain fees.
- Collateral – With a hard money loan, the property itself usually serves as collateral for the loan, but again, lenders may allow investors a bit of leeway here. Some lenders, for instance, may allow you to secure the loan using personal assets, such as a retirement account or a residential property you own.
The Bottom Line
Hard money loans are a good fit for wealthy investors who need to get funding for an investment property quickly, without any of the red tape that goes along with bank financing. When evaluating hard money lenders, pay close attention to the loan fees, processing fee, underwriting fees, interest rates and loan terms. If you end up paying too much for a hard money loan or cut the repayment period too short, that can influence how profitable your real estate venture is in the long run.