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What is a Hard Money Loan?

Posted on Oct 22, 2018 10:36:44 AM

Hard money loans typically refer to loans that are short-term and use real property as the backing for the loan. This type of loan rarely uses the credit worthiness of the borrower and simply uses the value of a property as the protection against default by the borrower.

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The Basics of a Hard Money Loan

Most hard money loans are issued by private companies or even individuals. Since there is more risk in this type of lending, interest rates are higher than traditional “home owner” loans. They can be used for new construction, “flipping” houses and even to update a rental property to obtain more cash flow.

The most common situation for a hard money loan is for property “flipping.” This type of loan is popular for flippers because of the quick funding and the ability to use money right away, versus the lengthy process of a typical home loan. Making the process of borrowing as easy as possible is a major benefit of getting a hard money loan. You can be building or renovating quickly, giving you the opportunity to sell quickly, or FLIP the property.

How does a hard money loan work?

While traditional home loans or mortgages have a lengthy approval process, hard money loans can be quick and easy. If you don’t need long term financing, considering a hard money loan is a smart choice. Hard money loans do share similarities with traditional home loans. The interest rate is calculated annually and paid monthly. Sound familiar? The difference is that a traditional home loan includes both principal and interest in the loan payment. A hard money loan typically includes an interest only payment, saving you money during your construction or renovation.

Once the project is complete, you can seek long term financing in a more traditional way, such as a bank mortgage. Or, you sell the property, pay off the hard money loan and pocket the profit, giving you plenty of cash for your next project or to scale your business. In most cases, all that is required is an appraisal of the property. It should be noted that much of the time, hard money lenders require that the project is acquired as an investment, rather than an owner-occupied property.

Why should I consider a hard money loan?

One of the most important parts of investing in real estate from a business perspective is the ability to move quickly. A hard money loan gives you that opportunity. If you can get financing or cash quickly, you can make offers and be fixing and flipping in a matter of days or weeks, not months. You can save money and time by using a hard money lender. The faster you get started, the faster you can sell. This puts the money back in your pocket quickly, giving you the capital you need to get started on your next project.

Interested in a hard money loan? Easy Street Capital prides itself on its customer service, ease of process, and speed. We look forward to helping you succeed by financing your next investment property. Contact us today!

Topics: Invest


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