A hard money loan is an amount a person borrows from a lender. The loan is backed up by the physical asset. The borrower should pay the interest to the lender on a monthly basis until the borrower pays back the loan amount. There are various benefits and risks in availing a hard money loan. Normally, hard money lenders provide hard money loan to real estate investors. You can obtain a hard money loan from individual investors or investor groups. realtor.com offers you tips on promoting your real estate business by availing hard money loan.
The article throws light on the benefits of availing a hard money loan. It also talks about the various risks involved in obtaining a hard money loan.
Benefits of A Hard Money Loan
There are several benefits for a real estate investor to obtain a hard money loan
Hard money lenders are individual lenders or small group of lenders, who do not care for your credit score. They do not bother about the other debts you possess. They only see the value of the property you’re backing for the loan. It takes only a few weeks to obtain a loan from a hard money lender.
They Lend More
A hard money lender borrows more amount than a traditional mortgage. Generally, a traditional mortgage borrows five percent less amount than that of the property you need to purchase. Banks offer lesser loan amount than the traditional mortgage services. But the hard money lenders offer you a loan for 100 percent of the acquisition price of the property. You’re entitled to pay the monthly interest and the origination fee. There is no need of down payment when you borrow money from a hard money lender.
You can build a good rapport with the hard money lender by showing your past loan records with banks or other financial agencies. This may increase the trust of the hard money lender, and he may be ready to work with you in the future. The hard money lender also can offer you a greater loan amount for your purchase of a property based on your proven track record. He may also lessen the origination fee for trustable people.
Good For Starters
Hard money loan is of great help for investors to buy a property of more value. Hard money serves as a starting point for their business. It helps them to get established in their business.
There are various risks involved in lending money from a hard money lender.
Higher interest Rate: It is common that the hard money loans come with a higher interest rate compared to the interest rates offered by banks. The higher interest rate makes the borrower to return the money at the earliest.
Higher Origination Fee
It is a processing fee for the loan borrowed by the borrower. Hard money loans have a higher origination fee. This is due to the high risk involved in the investment made by the borrower.
No Long Term Loans
Hard money loans are generally not for a longer period. It has to be paid back to the lender within a few months. There is a chance of the interest being raised if the borrower does not pay the amount within few months.
Losing Your Property
There is a chance for the borrower to lose his property if he is unable to pay back the loan amount.
The above are the benefits and risks of buying a hard money loan.