If you are a real estate investor, then you absolutely need to be aware of some important financing options and concepts related to it, so that you can ultimately choose the best strategies for you, and get the funding you need to, well, invest. And, there is absolutely no doubt that there are a lot of things you should know in order to form those great strategies. So, take your time to learn about those before taking any concrete investment steps, as that’s how you’ll get the most out of the deals you want to close.
Here’s some general info on property investing.
Anyway, one of the concepts you will absolutely need to get familiar with in this process is, naturally, the concept of hard money loans. Since you are here, there is a chance that you have heard of this already. Perhaps you’ve come across this idea while researching your financing options yourself, or maybe someone recommended this solution.
As any smart investor, though, you really don’t want to jump towards anything before getting your facts straight. And, if you are ready to get the facts straight, then you have come to the right place, because that is precisely what we will do right now. In short, below I will answer some important questions on hard money loans, aiming at explaining this concept to you completely. So, read on to get the guide you need, and to finally understand how all of this works, as well as why it may be the right option for you.
What Are Hard Money Loans?
Unsurprisingly, we are going to start with the most basic question here. So, what exactly is a hard money loan in the first place? To cut right to the chase, this is an asset-based and a short-term loan that private investor or lending companies provide to people, and they are widely used by real estate investors to finance their projects.
These differ significantly from the traditional mortgages in several ways. For starters, getting a hard money loan is much quicker than getting a traditional mortgage, which allows investors to complete their investing deals more quickly, and to not worry about someone else being faster. In short, the process can be completed in just a few days, allowing you to get the money you need pretty much in no time.
In addition to that, they also differ from the traditional mortgage option in the sense that they don’t require borrowers to have a great credit score to be approved. In fact, credit score is pretty much irrelevant here, and so is your income, given that the loan is asset based, which basically means that it is secured by the actual property you want to invest in. So, this allows even people with a poor credit score to dip their toe into the real estate investing pool, and to grab opportunities left and right, without being limited by the actual score.
How Do they Work?
How does all of this work, though? Well, as you may have imagined, it all starts with you finding a good lender. Once you have done that, you decide on the amount you need and you basically apply for the loan, after which there will be a short waiting period, as the lender has to review your application and approve it. With that done, you simply get the money and use it to finance the property you want to buy.
There are, of course, a few other important things to know here. For starters, these are short term loans, and you can expect the repayment period to be anywhere between 6 months and 2 years. The choice you’ll make here on the repayment period will depend on your actual real estate investing strategy, as I am sure you understand. If you’re flipping houses, for example, you may benefit from a shorter period.
Here are some general things you may want to know before investing.
Additionally, you should know that hard money loans usually come with slightly higher interest rates than those you could get on a traditional mortgage. This is completely logical, since the lenders are assuming higher risks by not taking your credit score into account, and since the whole process is so quick. In any case, you’ll still be able to get reasonable rates if you’re careful in the process of choosing a lender.
What Are the Benefits?
I suppose you could have assumed from the above what the benefit of getting hard money loans when investing in real estate actually are, but let me make things clear anyway. For starters, there is the fact that this can all be done extremely quickly, which allows you to close the deal you are after in no time, and that kind of speed is often essential for investors. And then, we cannot fail to mention the fact that there is no need to worry about your credit score, which is, without a doubt, another huge plus. Not to mention that the lenders are flexible, meaning you can usually negotiate your terms to get the best ones.
How Can You Get One?
Finally, let’s explain how you can get one of these for your investment project. It can all be done pretty quickly and effortlessly, and the only thing you really have to focus on here is finding the right lender. Once you’ve researched various ones and once you’ve chosen the perfect lender for you, just follow the application steps, then wait for the approval and get the money. It can’t get any simpler than that.
