General Article

The Basics of Hard Money Loans 

In today’s booming economy, many people are looking to passive ways to grow their money. One way to do this is to become a hard money investor. Something like Hard Money Investing is a way for a person to borrow money without going through traditional channels such as a traditional mortgage lender.

As a hard money investor, money comes from you. You lend the money based on a lot of factors traditional mortgage lenders don’t consider. In addition, you know your investment is good because the person obtaining the loan from you is placing their property as collateral for the loan. Whether you are thinking about investing or looking for someone to invest in your property, this is what you need to know about hard money loans.

What is Considered “Hard Money?”

Traditional loans require that a person has proof they can repay the loan. This means that traditional lenders use credit scores and income as a way to determine if the person can afford the loan. Based on a solid credit report and work history, a person may eventually get approved for the loan. This can be a slow or super slow process to complete.

The term “hard money” is used to describe the approach lenders take to secure a loan. An investor typically uses the property as collateral to secure the loan. This means no one looking at credit scores or work histories. Investors plan to get their money back, if the individual defaults, by obtaining and selling the property. This term also describes the type of loan passive investors are making in a property. Hard money loans are short-term loans. Traditional loans require 15, 20 or 30 years to repay. However, a hard money loan requires one to five years to repay.

Why People Seek Hard Money Loans

Many people seek hard money loans over traditional mortgage loans is because of the easy of the process. Hard money investors focus on the collateral and not the person’s current financial situation. This means the process closes quicker than traditional loans. Another reason that many people turn to hard money loans is the flexibility. These loans are more flexible than traditional loan agreements because of the standardized underwriting process. Each agreement is looked at separately. Thus, there’s no uniform underwriting process.

Approval is fast too. If a person is buying an investment property, a traditional lender typically wants to know the property’s worth. That’s how much they’ll lend. Most hard money investors are conserved with keeping the maximum loan-to-value ratios (LTV) around 50 to 70 percent.

Using Hard Money Loans for Property

When trying to find money for a property, it’s a good idea to explore hard money loans. These loans will assist you in getting the money you need fairly quickly. Also, they are easier to qualify for and understand. A hard money loan is not perfect. For example, the loan can be expensive to acquire. However, it may be the best option in a tough situation.