Real estate investors can benefit from hard money loans in a variety of ways. However, it is important to understand exactly what this term means in order to weigh the potential benefits. When an investor secures funding from a lender who is not affiliated with any financial institution, it is called a hard money loan. The borrower will be obligated to perform due diligence on the lender’s background, and this important step should never be overlooked or minimized. The outcome of the real estate transaction could depend on this one issue alone.
Every investor who seeks hard money loans should perform a thorough background check on the financial provider. General credibility is an issue that often comes up when dealing with hard money lenders. Borrowers are responsible for assessing the credibility of their funding source. This may include items like the business owner’s reputation or current status in terms of legal cases. Some of this information is publicly available, so the borrower should take the time to perform the necessary research before agreeing to the terms of the hard money loan.
Hard Money Loans, Potential Benefits
According to Delancey Street, hard money loans provide a variety of benefits. Compare the differences with the terms and conditions offered by traditional lending institutions like banks. The borrower will usually get better terms from the private lending source than from a bank. Funding for real estate investments can affect many aspects of the transaction. This includes critical items like approval rates, interest rates and payment options.
- Approval rates on loans: Securing fast approvals is a huge issue for real estate investors. When dealing with hard money loans, pre-approval can occur within a couple of days. There is still the need to provide proper documentation, and the transaction itself will still be scrutinized for potential return on investment.
- Interest rates: The interest rate on a loan is so important, and hard money loans typically have a lower interest rate than the ones offered by financial institutions like banks.
- Payment options: Private loans also have the advantage of allowing the borrower to personalize the payment plans. This is usually impossible with banks and other institutional lenders.
There are also other aspects of the transaction that can be affected once the financing source is secure. For example, the ability to secure a hard money loan will often be faster and easier than obtaining financing from traditional lenders like banks. Traditional lenders often introduce cumbersome requirements for borrowers who are seeking to obtain real estate investment loans. This may include a financial review of the borrower’s income, assets, collateral. In addition, the lender may inquire into the previous history and experience the borrower has of performing similar transactions.
Hard Money Loan Summary
These requirements can cause the process to slow down considerably, and they become an insurmountable obstacle in many cases. The issue of the borrower’s credit history is often less relevant to a hard money lender than to a financial institution. In addition, it is possible that additional funding from a traditional lending institution will become more viable once the borrower secures the hard money loan from an external source. Hard money loans can be the perfect solution for real estate investors who are confident that property values will rise in a specific area. Consider obtaining hard money loans for real estate investment projects.