Hard money loan amounts are based on the value of the property being used as collateral for the loan. It is not based on the credit scores of the borrower.
Banks do not issue hard money loans which is a preserve of private investors or lenders.
The higher costs of such a loan is often offset by the fact that the borrower tends to pay off the loan relatively quickly within a period of one to three years.
Hard money lending is a business model that can be practiced as an income generating alternative investment.
STEPS TO BECOMING A HARD MONEY LENDER
Hard money lending can offer several benefits for investors and if you are interested, there are a few steps you can take such as;
- Start your business by obtaining the required insurance and licenses.
- Create a legal framework for your business.
- Research to identify your preferred lending targets.
- Sign up to a peer to peer lending platform or network to search for possible investments and clients.
- Try and assess any potential clients by calculating their loan to value ratio with regards to the offered collateral.
Types of HARD MONEY LENDERs
You may want to consider investing in hard money lending if you are:
- Real estate investor: You are a real estate investor looking to grow your investment portfolio.
- Career professional: You are in a profession with a great income or have surplus cash.
- Retirement savings: You have a big retirement savings account.
- Retired investor: You are retired and are searching for a passive income investment.
- Trust fund: You own an estate or trust fund.
- Successful business: You are a successful business tycoon or entrepreneur.
- Lottery winner: You have won a huge lottery and have disposable cash.
- Family and friend: You are able and willing to offer a helping hand to a friend or family member.
ADVANTAGES OF HARD MONEY LOANS
- Quick and easy process
- No borrowing limit
The only fee you may be required to pay is origination fee and the monthly interest for the loan.
- Building relationships
This may work to your advantage and they may be willing to loan you more funds, reduce origination fees and interest due, and the time taken to receive the loan.
- Great for first time property investments
The loans are normally processed very fast and can be for as much as 100% of the purchase price of the asset you want to own.
DISADVANTAGES OF HARD MONEY LOANS
- High above standard interest rates
Most hard money lenders charge double digit interest rates due to lack of financing options for potential borrowers.
The 10% to 20% interest charged is used as an incentive to have you pay back the loan quickly, to avoid default, and risk of losing your collateral asset.
- Very high origination fee
Due to the risky nature of such an investment, the lender may charge as much as five times the amount a bank would normally charge.
- Loan is short term not long term
Repayment terms and durations, depend on each contract signed between a borrower and a hard money lender.
- Risk of losing property
The loan is supposed to be a short term fix for your funding needs.
WHY USE a HARD MONEY LOAN?
Why would you consider a hard money loan if it is so expensive? Hard money loans offer;
Each loan deal is evaluated separately and depends on your situation. You may be able to alter terms like repayment schedules.
- Quick approval
When you need to borrow against another property you own, that property’s value is what the lender will take into consideration.
WHERE CAN YOU GET A HARD MONEY LOAN?
Hard money loans can be easily obtained from hard money lenders such as groups of private investors, or from an individual investor with enough disposable income.
Contact us and let us help you get hard money loan financing for your real estate investment.
WHO uses A HARD MONEY LOAN?
- Real estate investors
- Bad credit borrowers
Despite the bad credit ratings, a good enough equity in a property may just interest a hard money lender, and convince them to give you a loan even with a bad credit history.
The costs associated with a hard money loan to the borrower is higher compared to getting funding from banks and other lending institutions.
This indicates the high risk the hard money lender is taking by offering you the financing.
A borrower is able to get a loan faster, an easy approval process, and potential flexibility in the repayment terms.
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