When it comes to financing a new business venture or property purchase, many different loan options are available. It can be challenging to decide which type of loan is right for your needs. This is particularly true when choosing between a hard money loan and a traditional bank loan. So, what exactly is a hard money loan, and should you consider it? Keep reading to learn everything you need to know about hard money loans.
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What is a Hard Money Loan?
Investors typically use this short-term, high-interest loan to quickly purchase a property or investment. Hard money loans are made by private individuals or groups of investors rather than banks, and they are secured by the value of the property being purchased.
However, it’s good to target suitable lenders with the proper track record who are more likely to loan you the money. With so many options on the market, it can be tricky to know where to start. When doing your research, look no further than New Silver as the leading hard money lender in the country. As a client, always work with a company with a proven track record and an experienced team. This will help you secure the financing you need. Generally, it’s important to remember the adage regarding hard money loans: you get what you pay for.
Before taking out a hard money loan, it’s essential to clearly understand why you’re taking out the loan in the first place. Are you looking to purchase a fixer-upper property? Refinance an existing investment property? Once you know why you’re taking out the loan, finding a lender that offers loans for your specific situation will be much easier.
What are the Benefits of a Hard Money Loan?
Here are some of the critical benefits of a hard money loan:
1. Fast Approval and Funding
One of the most significant advantages of a hard money loan is that it can be approved and funded much faster than a traditional bank loan. Sometimes, hard money loans can be approved and funded in as little as 48 hours. This is because hard money lenders are primarily concerned with the value of the purchased property rather than the borrower’s credit history.
You need a loan that doesn’t take weeks or months to fund. You need a loan that will close fast so you can move on to your opportunity. Look for a lender with a track record of quickly approving and funding loans.
2. Flexible Loan Terms
These days, banks are offering fewer and fewer loans with flexible terms. On the other hand, hard money lenders are typically more willing to work with borrowers to tailor a loan that meets their specific needs. For example, hard money loans can be structured with interest-only or balloon payments.
In addition, hard money loans can be used for various purposes, such as financing the purchase of a fixer-upper property or refinancing an existing investment property. Consider what you need the loan for, and look for a lender that offers loans for your specific situation.
3. Lower Interest Rates
Despite the common misconception, hard money loans have lower interest rates than traditional bank loans. This is because hard money loans are typically short-term loans so the lender can charge a higher interest rate over a shorter period.
For example, a hard money loan with an interest rate of 10% for a term of two years would have an annual percentage rate (APR) of 20%. A traditional bank loan with an interest rate of 4% for 30 years would have an APR of 4.78%.
4. Approval Amount is Based on Property Value
When taking a loan from the bank, the amount you’re approved for is based on your credit score and income. With a hard money loan, the amount you’re approved for is based on the value of the property being purchased. This can be very beneficial for investors looking to purchase a fixer-upper property or a property needing major repairs.
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For example, let’s say you’re looking to purchase a fixer-upper property that needs $20,000 in repairs. With a traditional bank loan, you would only be able to borrow enough money to cover the property’s purchase price. With a hard money loan, you could potentially borrow enough money to cover the purchase price of the property plus the cost of repairs.
A hard money loan can be an excellent option for investors who purchase a fixer-upper property or refinance an existing investment property. However, it’s important to remember that hard money loans come with higher interest rates and fees than traditional bank loans. Research and shop around before taking out a hard money loan.