If you need a loan but don’t have the money to put down, your options are often limited. This is where hard money loans come in. Hard money loans are cash loans backed up not by money down but by other holdings including real estate collateral. They are usually issued by private investors rather than banks and carry higher interest rates than money-down loans. Here at AS-IS Loans, we’re here to walk you through the process of applying for hard money loans and help you determine if it is the right option for you.
What Are Hard Money Loans?
Hard money loans are the earliest loan offered. Back when trading was traditionally done with gold coins or other hard goods, collateral was not always part of the equation, and loans were often enforced with threats of violence. When real estate became a part of the average way of life, it changed the equation of borrowing and introduced a major new financing source. As a result, people who didn’t have cash on hand had an asset that could be called back by the borrower in the event of a loan default.
There are multiple types of hard money loans, and it’s important to do research before signing a contract. They include credit card cash advances, but those will usually require income verification. A purchase-money loan is money borrowed to purchase a home. The lender gets equity in the home and may take back possession if their loan is not repaid. Equity loans work similarly, offering equity in an already-owned home for cash up front. Hard money loans are also called no-doc loans because they’re available without any documentation of income as long as you have the necessary equity.
Payday loans, offering cash up front with a limited deadline, are also hard money loans. These should be avoided due to high interest rates and aggressive tactics. They’re heavily associated with loan sharks and are designed to make money off the loan. An ethical lender will not make it hard for you to return their money in full.
Who Needs Hard Money Loans?
Hard money loans are ideal for anyone who doesn’t want their income scrutinized by a bank or other source as part of a loan application. This is common for freelancers whose income may be paid through alternative sources like Paypal, someone between jobs, or younger borrowers without a long income track record. New immigrants trying to start a business are frequent customers for hard money loans. People with a poor credit rating or no credit history often fall back on hard money loans as they don’t require a credit rating check.
Hard money loans are an option for families dealing with a sudden decrease in income due to job loss. Homeowners can be asset-rich but cash-poor, and hard money loans offer a quick way to get through the hardest period and make essential short-term purchases that can be repaid when new employment is found. Hard money loans are typically short-term loans, designed to get a borrower through a hard period or an urgent looming deadline.
What Are Hard Money Loans Used For?
Hard money loans are commonly used for large one-time purchases. They are a common option for those buying their first home, giving the lender a stake in the home rather than cash up front. Hard money loans are commonly used to buy investment properties that the buyer will fix up and flip. One of the most common types of hard money loan is mortgage refinancing, where a new loan is taken to pay out an existing loan on the house. This resets the clock but often results in a higher overall loan balance.
Bridge loans are hard money loans that are designed for home sellers who are buying a new home before closing the sale on the first. The lender gives money for the purchase of the new home–financed against the sale price of the existing home. This is common in seller’s markets.
If you’re looking for a loan without paying cash up front, a hard money loan may be an ideal solution. Backed up by equity and collateral rather than cash, they are a common solution for first-time home buyers ready to give up equity, investors looking to buy and flip properties, or homeowners looking for cash to get them through a lean period. In exchange for equity as collateral and points on the loan, you can get a loan with no credit check, no money down, and no mark on your future credit reports. If you’re considering a hard money loan, contact AS-IS loans to see what we can do for you.