What is Hard Money?
It is a form of real estate financing that comes at a high rate of interest and minimal formalities, and is available to you within no time. This is great if you are interested in making a promising deal and it is impossible for you to get a traditional loan. Most of the rehab deals are not eligible for the traditional loans due to the large amount of renovations needed. Therefore, quick closing in such deals is necessary to prevent the deal from slipping away.
Some Important Facts about These Loans
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You can borrow up to 65-70 percent of the current value of the property. Hard money lenders base their decision solely on the market value of the property. For them your FICO score is not important as they base the loan eligibility on the value of real estate. This is important for them, because if borrower defaults on the monthly installments, they can sell off the property to recoup their money. Lenders would also be interested in knowing more about your business, what you are currently doing and how you intend to pay back the loan amount. Do you have funds for repairs of the property?
Some advantages of getting hard loan are:
1. You have a much shorter repayment period of 2-3 years as compared to 15-30 years in traditional loans. So, there is no need for getting tied to the loan for such a long period.
2. Hard money lenders provide loans strictly on the basis of collateral, which means less paperwork or no credit checks. Instead of weeks or months as in the case of traditional loans, you get money within a few days.
3. There is no penalty for paying off your loan early as they expect you to do so. In traditional loans, you will have to pay some sort of penalty.
4. Though these lenders charge a higher rate of interest on such loans, they are only for a short duration, so they will not hurt much. In fact, they work out to be cheaper than traditional loans!
5. A hard loan has been designed for helping you for a short duration while you are seeking financing from other sources. This helps a reseller or developer in acquiring property or land quickly while long term financing is being processed.
Traditional loan providers are cautious while providing you with the real estate financing, whereas hard money lenders are speculative with their money. This means you can secure a hard money loan where traditional lenders might not lend. There is no substitute for a hard money loan when used as a tool for making big money.
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