Hard money lending is a complicated process that many people misunderstand. It’s not uncommon for borrowers to believe that they are not eligible or will be paying sky-high interest rates when they can get hard money loans with fixed rates. Conversely, some people don’t believe that hard money loans can be used for specific purposes. Even experienced real estate investors can sometimes stumble regarding hard money loans, even though they are typically very well informed.
What is Hard Money Lending?
Hard money lending is borrowing money from real estate investors. Hard money loans are very well known for their high-interest rates and the fact that you can only use them for real estate investments. Because of this, hard money loans are not available to most consumers. There are some exceptions to this rule, such as loan modifications that the federal government made available through the Home Affordable Refinance Program (HARP), a modification program established by the U.S. Department of Housing and Urban Development (HUD).
1. Repayment Terms With Hard Money Loans are Long
Borrowers with credit issues or other problems that make it difficult to get conventional financing from a bank may be eligible for a hard money loan. However, because it is a high-risk loan and borrowers who do not pay their bills as agreed can lose their property, lenders often require longer repayment terms. These loans are still an excellent deal for you if you are buying real estate to flip or hold for investment purposes and want to cover the cash flow needs of your investment. Just remember that you may be required to make payments for a more extended period.
2. Hard Money Loans are Available Only to Those With Bad Credit
Contrary to popular belief, you can get hard money loans even if your credit is good. Many lenders will require their borrowers to have at least three years of positive credit history and a FICO score of at least 650 before considering them for hard money loans, but this does not mean that you need a bad credit score or no credit history to get approved.
3. Hard Money Loans are Only a Good Deal for Those Who Own Real Estate
Whether you own real estate, hard money loans can be a good deal for you. If you are buying a house in cash, it is possible to get hard money loans that allow you to finance the entire purchase price of the house. It can help you make your purchase much more quickly, but you don’t need to use a hard money lender.
Equity investors typically do not worry about interest rates or repayment terms when they get a hard money loan. Because of this, many investors may be surprised by the information provided here, but for those who are just considering getting a hard money loan to help with a real estate investment or to finance the purchase of a property, it is essential to know what you will be getting into from the very beginning to make sure you understand precisely how much you must put down to get approved.