Maybe you found the perfect house to flip, but you’ve gotta act fast to put your bid in. Maybe you’re on a tight deadline and you know the bank won’t be fast enough. Or maybe your credit just isn’t quite what it should be at the moment and you need a speedy alternative to traditional lending.
Whatever your needs, hard money loans can come to the rescue when you’re in a hurry. Keep reading to find out how.
What is hard money lending?
First of all, what are hard money loans? How do they work?
A hard money loan is a short-term loan that’s secured by real estate. Instead of being funded by a bank, it is funded by private investors or an investor fund. The term of a hard money loan is typically between six months and a year, but it’s not unheard of to get a term of up to three years in certain circumstances.
The monthly payment for a hard money loan is usually only interest money, or else interest with some principal, with a balloon payment at the term’s end.
Instead of being based on your credit score or history, the amount of money a lender is able to loan out depends on the value of property used as collateral. Sometimes the collateral property is already owned by the borrower, but often the very property the borrower wishes to acquire is used as collateral.
In other words, hard money lenders are more interested in how much the purchased property is going to be worth than they are in the borrower’s personal credit. Because of this, borrowers who can’t get traditional financing from a bank will often find that hard money loans are a convenient and speedy option for them.
How fast is hard money lending?
We’ve talked about how hard money loans are faster than traditional loans and a tempting option for borrowers on a deadline. But what are the specific timeframes for a hard money loan?
As with most things, there’s no “one size fits all” answer. But in the majority of cases, a hard money loan can be approved and funded within just one week.
Try comparing that to the 30- to 45-day wait you’d have to endure while a bank funds your loan, assuming they approved it at all!
The application process for a hard money loan usually only takes one or two days. In some cases, a loan can be approved on the very day you apply for it.
As noted, the exact specifics for how long a hard money loan takes will depend on the individual situation. But you can rest assured that the process of acquiring a hard money loan is much faster than that of trying to get a bank loan.
What do you need for private lending?
While hard money loans are great for people in a hurry or with limited options, which cases are they ideal for? What do you need in order to qualify for a hard money loan?
The following are the specific types of deals for which hard money lending is optimal:
- House flipping loans
- Land loans
- Construction loans
- Any property loan where the buyer has credit issues
- Any property loan where the real estate investor or buyer has to act quickly
Even though a real estate investor may choose a hard money loan over other options for several reasons, the most common reason is that hard money lenders can fund loans quickly. This gives real estate investors a significant advantage over competitors, who often find themselves waiting weeks or months for their loan to become available.
To be the ideal candidate for a hard money loan, you should be a real estate investor of some kind (such as a house flipper), or you should be in a situation where traditional financing just won’t work for you (such as bad credit or shortage of time).
Otherwise, your eligibility to receive a hard money loan depends primarily on how valuable the property is you want to buy, as well as upon your plan for developing it. The amount of equity you have already invested in the property to be used as collateral also has some weight in the decision.
Contact Hard Money Georgia today to learn more abut hard money loans and find out whether you might qualify for one.