If you’re in the market for a new investment property and you’re having difficulty securing financing, then you may want to work with a hard money lender. Instead of a traditional loan, a hard money loan can really help people seeking to grow their real estate portfolio.
What is a Hard Money Loan?
Just like a traditional mortgage, a hard money loan is secured by real property. The difference is that the loan amount is based on the value of the property instead of the borrower’s creditworthiness. A private lender will obtain a broker’s price opinion or independent appraisal and offer a loan of up to 75% of the value of the property. Hard money loans typically have an interest rate higher than conventional loans, as well as a shorter repayment period. This is because they are intended for people seeking to update and sell a property.
How Does Hard Money Lending Work?
It may seem strange to use a hard money loan if you intend to flip a property. After all, the property’s current value probably doesn’t reflect its potential. But this type of loan is usually based on the value of the property after it has been repaired. This is why private investors will factor in a broker’s price opinion with an appraisal to assess the value. Often, a broker’s price opinion will include an analysis of what the value will be after the property is renovated to current standards or with luxury upgrades. This allows the real estate investor to secure a loan higher than the current value of a distressed property and complete any necessary renovations.
What Are the Benefits of Using a Hard Money Loan?
The biggest benefit is that hard money lenders approve these loans and provide funds more quickly than a traditional lender. Traditional lenders can take weeks or months to finalize this process, while a hard money lender is likely to approve a loan within a couple of weeks. A borrower using a hard money lender also has more room for negotiation of the loan’s terms, as well as the option to use other assets to secure the loan outside of the property being purchased. This flexibility makes hard money loans an attractive option to real estate investors with other assets.
These loans can be a viable alternative to traditional lenders for people seeking to expand their real estate portfolio. For more information on how we can help you secure the funding you need for your next venture, please contact our team today.