With roughly 50 different hard money lenders in Atlanta, Georgia, there’s a wealth of opportunities for taking advantage of hard money loans. But what exactly is a hard money loan and how can a hard money lender be of benefit to you? This article will answer these questions and more.
What Exactly Is A Hard Money Loan?
A hard money loan is a short-term loan that is secured by real estate. The main difference from conventional loans is that instead of being issued by some form of a bank, hard money loans are funded by private investors.
Terms for a hard money loan usually last about 12 months. However, some longer-term hard money loans can last as long as five years. After taking out a hard money loan, you will be required to make monthly payments of only interest, or interest plus some principal, with a balloon payment due at the end of the term.
Because investors are less particular about credit scores, they’re also taking on a substantial risk when they lend a hard money loan to borrowers. To compensate for this increased risk, interest rates on hard money loans tend to be somewhat higher than interest rates on conventional loans. However, this is a small payoff for getting to take out a loan at all when your credit score isn’t quite impressive enough for a bank loan.
What Can I Do With A Hard Money Loan?
Hard money loans are exclusively for buying property and housing, but virtually any type of property is acceptable. This includes single-family homes, commercial spaces, and even farms.
Some lenders only focus on a specific type of property, so it’s important to understand the terms and expectations of a potential lender before approaching them for a loan.
How Do I Qualify for A Hard Money Loan?
Conventional loans are usually issued based on the would-be borrower’s credit score. But in the case of hard money loans, the determining factor for whether a loan will be issued — and how much money will be loaned out — is usually the value of the property being purchased with the loan.
In a way, investors funding the loan are investing in the property through the borrower. Instead of simply counting on having their money paid back with interest, they look for borrowers with plans for purchases that will become increasingly valuable over time.
How Will A Hard Money Loan Benefit Me?
Hard money loans can be considered bad credit loans, which is good news for responsible people who for whatever reason don’t have the best credit score.
Hard money loans are issued based on property value, not just on a person’s credit. So people who’ve been turned down by banks can often secure a hard money loan from investors.
If conventional financing is unavailable to you because of a recent foreclosure or a short sale, you could still qualify for a hard money loan, as long as you have enough equity in the property you intend to use as collateral.
In other words, even when banks say no, lenders may still say yes.
As you can see, hard money loans are an excellent option for would-be property buyers who don’t have the luxury of a shiny credit score. Hopefully this article has successfully answered any initial questions you may have had regarding hard money lenders.