The real estate business is highly competitive and requires one to have a substantial amount of readily-available money or have quick access to loans. Players in the industry know a good deal when they see one, and the difference between winning and missing out is, more often, how fast you can pay for a property. People who have been in the real estate business for long will tell you that they will always find a way to get money fast enough to beat their competitors to a good deal. One of the fastest ways to do this is through a hard money lender.
Hard money lending is a different way of financing which does not involve borrowing money from traditional mortgage lenders. Instead, hard money lenders are individual investors or companies who loan out money, mostly in the short-term, but with a higher interest. A hard money lender makes it easy for people to borrow money because, unlike the banks and big lenders, the lender is only interested in the value of the collateral for the loan you take. Hard money loans are usually more popular among real estate investors who are seeking for fast construction loans or fix and flip loans.
Without utilizing a hard money lender, most people in the real estate business would get stuck with the traditional mortgage lenders who may take days or weeks to approve a loan. This does not sit well with the investors, since they are in a fast-moving real estate business where competition is cut-throat. Moreover, the big lenders might eventually deny you mortgage loans based on your credit score or any other aspect that might disqualify you.
However, it is not the case with a hard money lender as investors are guaranteed to secure loans, as long as they have other property, which they can present as collateral. Hard money lenders are least concerned with your credit score or ability to repay the loan because they have a property that they can auction and get their money back. This happens when a borrower defaults on their agreement.
Here are more reasons why hard money loans are popular among real estate investors.
1. Flexibility in Loan Repayment Terms
Most of the people who take out hard money loans prefer a lender with whom they have made acquaintance – one who knows their borrowing and repayment history. A city like Atlanta, GA, has about 50 hard money lenders who offer loans in the town. You will find most people seeking hard money loans in Georgia using any of the 50 lenders with whom they have already established a working relationship. The fact that the money lenders are individuals means you can discuss flexible loan repayment methods. This gives borrowers more confidence to borrow hard money, as opposed to taking mortgage loans that have strict repayment terms. You can also request a top-up on your credit, in case you need extra money after taking out the loan.
2. Speed of Approval by Hard Money Lenders
Since the essential part of a hard money loan is the collateral, it is quick to establish the value of the property given as insurance and approve loans based on that. Therefore, the lender will not need to do a lot of background checks to ascertain your financial history as long as you have collateral. Additionally, the lender will have no restrictions on the amount you want to borrow, as long as it is worth the value of the property used as collateral. It makes it easy for real estate investors, mostly those involved in fix-and-flip property. This type of investor takes short term loans, renovates a property, then waits for a while and sells at a profit. The lender gets the money back plus interest and the investor makes a profit from the sale – a win-win.
Hard money lenders serve to bridge the significant gap left by the strict restrictions and bottlenecks imposed upon borrowers by the traditional mortgage lenders. You are sure to get a loan from your local lender as long as you have collateral, and the lenders will not be discouraged by your credit score or financial history.