Although banks are happy to provide their clients with loans when they can profit from them, their strict rules prevent some people from successfully borrowing money. Fortunately, potential borrowers have another option for securing a loan: hard money. If these loans are new to you, keep reading to learn how they work.
What Is Hard Money?
Hard money refers to a type of loan that uses equity, which can include property and other assets, to secure the loan. A hard money loan may be within reach when a credit-based loan is not. These are usually short-term loans, unlike the long-term borrowing that happens for long-term property loans.
Because hard money lenders cannot use a primary residence as equity in the U.S., they work with business clients.
When Do People Borrow This Type of Loan?
Although some people only consider hard money loans when they’ve exhausted other options, it doesn’t have to be this way. Working with a hard money lender might be the smartest move when you can easily pay back a short-term loan in the near future. For example, some people use hard loans to fund property flips. Once the property sells, they repay the loan and take home the profit.
Borrowers with lower credit scores might consider a hard money loan. Similarly, borrowers who have recently switched jobs might not be approved for a traditional loan, even if they’re high earners. A hard money loan requires equity, not income or employment history. Homeowners may also work with a hard money lender to avoid fines for late payments on an existing loan or prevent foreclosure.
What Are the Risks of a Hard Money Loan?
Hard money loans may have higher interest rates than traditional loans. Additionally, failure to repay the loan may result in loss of property, making hard money loans riskier for borrowers.
How Much Can You Borrow?
Lenders typically often offer up to 65% of the asset’s value as a hard money loan. However, specific lenders and circumstances may impact this amount.
Is Approval Quick?
Yes! While you might have to wait a month to close a loan with a bank, hard money loans can close in five days or less! This puts money in your pocket when you need it quickly.
Are Hard Money Loans Regulated?
Yes, hard money lenders must be licensed in a state to operate. Regulations are typically less stringent than for conventional loan lenders, however. The benefit is that lenders have the flexibility to offer more creative loan options to their clients than most lenders have.
If you’re interested in a hard money loan or have other questions, contact Hard Money Lenders AZ to explore your options.