The Ins and Outs of Hard Money Lenders

If you want to invest in real estate but you don’t have cash, you have to fund your investments through a loan. Bank loans are a possibility, but they require a substantial down payment that can really put a strain on your finances. Most banks require about 20% down, which equates to $20,000 on a $100,000 home. As a real estate investor, you might be interested in any alternative that doesn’t require as significant of a down payment. That is exactly what hard money lenders provide and it’s a great opportunity to get funding for a real estate investments. One alternative to hard money lenders are direct payday lenders but they usually deal in small loans amounts.

Hard money lenders DO charge higher interest rates than banks

Despite what another source may have told you, hard money lenders typically have higher rates than a bank. They use your real estate investment as collateral for the loan, which means it’s a much shorter loan than a traditional bank loan would be. Once you’ve sold the property, your hard money loan would then be paid off in full. The shorter the loan is, the more interest they have to charge you in order to make a profit and that’s why hard money lenders charge the interest rates that they do.

Hard money lenders charge very LITTLE upfront as a down payment

Since hard money lenders provide real-estate backed loans, they have collateral in case the investment doesn’t work out. This is why they are comfortable charging very little upfront. The benefit to you as the buyer is substantial. This means that you won’t have to pay a high down payment like you would with a bank. On a $100,000 home, you might only have to pay $2,000 – $5,000 down with your hard money lender, opposed to the $20,000 that the bank would ask for. Hard money loans are an excellent way to fund your real estate investments without breaking the bank.

Hard money lenders DO hold you liable for what you owe

Unlike a bank where you can sometimes use a short sale or foreclosure process to get out of your loan, a hard money lender is still going to hold you liable. In fact, the property you are buying is used as collateral. If you are unable to sell the home and pay back the loan, your hard money lender can take the home as payment and your loan will be forgiven. This is why hard money lenders never provide loans for higher amounts than the value of the real estate that you are buying.

Hard money loans CAN help you afford renovations

As a real estate investor, you are likely to make your profit by flipping homes and making them more valuable than what you purchased them for. Hard money loans require very little upfront, which means that you will have more money to afford renovations. Some hard money lenders will even provide you with a loan that includes the money you need to complete the remodel. This can be very beneficial to your finances and it can help you flip homes without stressing out about the money that you are spending.

Hard money lenders DO NOT use credit as a determinant for your approval

A hard money lender is very unlikely to use credit as a determinant for your approval. This is unlike banks that have strict policies that they must abide by. Your approval will be based on your income, the property that you are purchasing, and the value of the home. This allows an individual with poor credit or even no credit at all to still qualify for a loan. Additionally, since hard money lenders require such a small down payment, you don’t need much money to get started.

One Response to The Ins and Outs of Hard Money Lenders

  1. Randy says:

    These are good points of how good hard money loans is but I think you forgot to mention too that hard money lenders doesn’t give you 100% of your loan amount but up to 70% only to protect their investment. This is one of the sad part of having hard money loans aside from they charge higher interest rates. But overall, these are the deals that no bank can’t counter offer because hard money lenders are able to release a loan as short as one week than any bank can’t do.

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