We’ve all been there. That once in a lifetime property hits the market for an unbelievable price, but before you can secure your funding, another investor sweeps in and takes the prize. Banks are in no hurry to lend money for real estate, but there is a much faster option out there. They are called hard money loans, but there is nothing hard about them. Read on for more information, and if you decide this is the answer for you, As Is Loans has been in the business of supporting real estate investors for over 30 years, and they can get you funded in no time.
How Do Hard Money Loans Work?
Hard money loans use private funds as opposed to a bank or financial institution’s money. Conventional, or bank loans, have a lot of red tape associated with them. Hard money loans are doled out by experienced investors who have a lot more freedom in lending money. Typically, these are short-term loans, with the most popular length being 12 months, but some can have a term as long as three years.
What Are the Typical Terms for a Hard Money Loan?
Investment lenders are flexible on loan terms, but typically all hard money loans have a payment structure of interest and principal payments monthly throughout the term with a balloon payment at the end. Some lenders allow the borrower to pay interest-only throughout the term of the loan, and the principal is due at the end of the term as the balloon payment.
Terms and loan specifications are flexible because of the lender loans money based on the value of the collateral as opposed to the borrower and their ability to pay. Because the lender is taking on greater risk by not requiring proof of income and tax returns, the interest rates are higher. However, because the term is a fraction of a typical mortgage, you are paying the interest for a shorter time period.
Who Is the Typical Hard Money Loan Customer?
Anyone who is looking for fast funding can benefit from a hard money loan. These types of loans are structured for real estate investors because of the interest-only payment options, the short term, and the balloon payment. A good deal of hard money loan lenders will not award loans for owner-occupied properties. The Dodd-Frank Wall Street Reform and Consumer Protection Act deters hard money lenders from making mortgage type loans, but there are still some that will offer them. A list of optimum uses for a hard money loan is below:
- Fix and flip investments
- Land loans for future development
- Construction loans
- When investors need to act quickly
- Bridge loans (loan before securing permanent financing)
Do You Need Good Credit for Hard Money Loans?
Hard money loans depend more on the collateral property than they do the borrower’s ability to pay. Hard money loans are perfect for people who have bad credit, a recent foreclosure, or even bankruptcy. A hard money loan could help anyone who cannot secure conventional financing.
What Are the Benefits of Hard Money Loans?
While they aren’t for everyone, there are many benefits to applying for a hard money loan. Typically tax returns, W2s, or paystubs are not required to secure a hard money loan. These lenders will allow the investor to borrow up to 75% of the property value. As-Is Loans allows borrowers an 85% loan to value, which is higher than the norm. Some hard money lenders allow the borrower to borrow on the proposed property value (after all repairs and upgrades are completed). This allows the borrower more money and flexibility.
Hard money loans offer a very short turn around. Typically you go from starting an application to approval in one to two business days, and funding shortly thereafter. This is much faster than traditional banks who have a four to five-week turnaround. If you’ve recently had problems with credit, or just started a new job, banks will typically turn you down, but hard money loans are perfect for these situations. It’s like a second chance loan.
Because these investors are not restricted by bank regulations, they can custom tailor a product just right for you. This includes flexible terms and rates. For example, As Is Loans works with 6,000 different lending partners, which makes them able to lend when other banks and investors can’t.