The strict regulations on banks following the housing market crisis in the late 2000s have made it more challenging to obtain a mortgage. That is where having a hard money lender can save the day.
While experienced real estate investors may be familiar with them, novice investors might not. Here are three benefits of using a hard money loan.
Fewer Approval Requirements
Hard money lenders don’t have many requirements when it comes to lending.
That isn’t to say they hand it out to everyone. But fewer requirements mean higher chances of getting the loan!
Since their collateral comes from the investment property, hard money lenders are more concerned with its value than your income or credit score.
Their requirements are:
- Sufficient equity in the property (at least 25-30%)
- Enough cash on hand for monthly payments
- A reasonable exit strategy
- Ample experience
As long as you fulfill the mentioned requirements, your chances of getting the loan are pretty good.
On the contrary, banks have rigorous requirements that only reduce your chances of getting it. From short sales to foreclosures, banks look at everything.
A hard money loan is not only a good option for people with credit issues or multiple mortgages but also for self-employed people.
Quick Funding Process
Speaking of fewer requirements brings me to the next benefit: The speed of hard money lenders.
The best thing about using a hard money lender is how quickly your loan is approved and funded. If you haven’t used a hard money lender before, you would be surprised at how fast the process is!
In real estate, you need to be as quick as a flash. With the constant fluctuations and competition, no one wants to miss out on a good deal.
A hard money loan requires only a few boxes to be ticked, making the approval and funding process quicker.
Funding them can take 7 to 10 days but can also be done within 3 to 5 days if needed.
Compare that to nearly 30 days to fund from the bank, and you will agree that it is like the speed of light!
A hard money lender can be a savior for real estate investors who need quick financing, especially those whose lender pulled out last minute.
Room for Flexibility
Flexibility in Terms
Hard money lenders are flexible in the loan terms since they don’t have a standard underwriting process.
That doesn’t mean they don’t follow any guidelines. But because you will be dealing directly with the individual or private company, they will be open to changing a few things here and there.
Depending on your situation, they can tailor the terms. Whether you want to change the repayment schedule or reduce the fee, you can always negotiate.
Flexibility in the types of investment projects
We all know how risk-averse banks are, so they obviously prefer long-term loans. But then what should an investor who needs a short-term loan, like a fix and flip loan, do?
Go to a hard money lender!
Hard money lenders are more open to funding different projects that banks would rarely (maybe even never) want to. These include residential and commercial properties, construction loans, etc.
There you have it, the three benefits of using a hard money lender! Make sure you leverage your strengths to their full advantage and seal the deal with yours today.
May the force be with you!