Have you heard of this concept of a hard money loan? The answer for many people is that they have not. Unless you are specifically in the real estate industry, it is hard to imagine too many reasons why you would have come across this term. Fortunately, you can learn what you need to know about it now so that you know how and if you should borrow this kind of loan in the future.
Why Traditional Loans Don’t Work Well
Most people borrow traditional loans when they invest in real estate. This involves going to a bank or credit union and virtually begging them to lend you money on a property. It is burdensome and there is no guarantee that you will get approved. As a matter of fact, the bank or credit union will dig deeply through your finances and credit score before they will even consider you for this type of loan. That can be the end of the conversation for a lot of people.
Speed is definitely not the name of the game when it comes to traditional loans either. With this type of loan you are looking at a thirty to sixty days just to hear if you have been approved or not. At that point you can start to get excited or not about the property. That is way too long of a wait for those who are serious real estate investors. They know that above all acting quickly is what keeps them in the game.
How A Hard Money Loan Is Different
A hard money loan is a lot different from a traditional loan. For one thing, you are borrowing from an individual in most cases with a hard money loan. You therefore probably have a more personal relationship with that person than you ever will with a bank.
There are other differences in this type of lending as well. For example, it has a lot more to do with the collateral of the property in question than it does with checking credit scores and the like. Banks enjoy checking credit scores and eliminating people from their lending process due to that. A hard money lender will not care nearly as much about that three digit score.
This is not to say that a hard money lender does not care at all about who they lend to. Quite the opposite is true actually. What they really want is to lend their money to a person that they do believe can pay them back. However, they simply use different means to evaluate the credit-worthiness of their borrower.
There are plenty of regulations when it comes to purchasing real estate through a loan from a bank. You would be surprised by how many people get caught up in all of the paperwork and are thus never able to actually close on the property that they have wanted for a long time. That is the sad reality of borrowing for real estate today.
Luckily, the hard money lenders do not have nearly as many regulations to follow as do banks and credit unions. They are much more free to draw up their own terms and conditions as they see fit. Therefore, they will often create something that has a lot more flexible terms for their borrower. That also plays into the advantage of taking out this kind of loan rather than a traditional one.
All in all, we are lucky to have different ways to borrow money on real estate. The more choices that there are available to us, the better our selections can be to meet our own personal needs as well as the needs of our family or investors. Hard money lending is something worth exploring for those who understand the value of acting quickly to snatch up the properties they want to have in their hands.