A hard money loan is a type of non-bank loan that comes from a private money source. Hard money loans are known for their speed of funding, low hassle loan approvals, and higher interest rates. So why would anyone pay the higher interest rates associated with a hard money loan?
- Speed of Funding: Because good real estate opportunities don’t wait for bank loans, a hard money loan may be your only option for financing a real estate transaction. When it comes to fleeting real estate opportunities, it’s either buy with all cash, or buy with a hard money loan in place of all cash.
- Rehab Properties: Often the best values in real estate can be found in the purchase of properties that need work such as repairs, past due maintenance, and cosmetic rehab. Most banks won’t lend on these types of properties for many reasons.
- Bad Credit or No Credit: Banks won’t lend to borrowers with bad credit or no credit, but hard money lenders are usually not concerned with credit but rather with the property being used as collateral for the loan. For example, a borrower with a bankruptcy or foreclosure is not a problem for most hard money lenders.
A hard money loan may be your best option when the situation calls for it, so make sure that you have a few hard money lenders on your contact list. You never know when you may need one!