Real estate investors trust the properties they buy to generate income. While a strong buyer market certainly favors investors, a great deal of financial knowledge is required to successfully navigate real estate investments. After all, conventional financing, like FHA loans used to buy residential homes, is often not available to investors. Instead, many investors turn to private money lenders, also known as hard money lenders, to finance their purchases.

Hard money loans, also called private loans or share-based loans, are designed to meet the needs of real estate buyers who cannot use traditional financial products. In many cases, banks and other credit institutions will not finance real estate purchases because they do not meet the strict criteria for the types of properties that qualify for financing. In other cases, people are unable to obtain financing due to past foreclosures or credit problems.

Buyers and investors who want to buy real estate but don't qualify for traditional financing can use this type of private financing. Before applying for one of these private loans, it is essential to understand what types of products are available.

Fix-and-Flip Loans

True to its name, repair and exchange loans are designed for investors who want to buy property, rehabilitate it, and sell it for profit. These houses often do not qualify for FHA financing because they need too much work. Repair and return loans are widely used across the country and can be used by both new and experienced investors. Most hard money loans designed for repair and exchange properties can be used to finance both the purchase price and the cost of repairs. These loans can also be called residential or commercial rehabilitation loans.

Bridge Loans

Bridge loans are a type of private money loan used by business owners to bridge the gaps between their operating expenses and available funds. The business owner can choose a bridging loan to pay a large amount on delivery or to have free and clear property. These loans are also a good alternative when a bank does not refinance a mortgage.

Construction loans from scratch

Some investors want to build innovative properties but cannot find the financing to do so. Private financing for construction from scratch can provide the necessary funds to purchase land and complete construction projects. These types of loans are often used by investors and business owners who want to build special properties that are difficult to assess or that traditional lenders perceive as high risk,

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Understand Hard Money Loan Options