What is a Hard Money Loan for Real Estate Investing?

A hard money loancan be great for real estate investing, especially if you’re new to real estate investing and don’t have the capital to put up front. Essentially, this unique type of loan is a short-term, interest-only loan that is more focused on the asset, rather than your credit score. What you bring to the table is a property as collateral. You can then use the approved loan for the purchase and renovation of the property. What is the Length and Cost of a Hard Money Loan?rnA typical hard money loanterm is anywhere from 6–24 months long, and a real estate investor normally wouldn’t want one any longer than that — the interest rates are usually higher than those of a traditional loan. With that in mind, a borrower’s down payment can be significantly lower when it comes to a hard money loan. Instead of a 30 percent down payment on a traditional loan, hard money lenders only require a down payment of about 20 percent. That makes it a lot easier to procure a loan and get moving on your real estate investment project. What are the Advantages of a Hard Money Loan?rnThere are several major advantages to a hard money loan such as speed, adjustable payment schedules and more. • SpeedrnSpeed is typically not associated with traditional lenders, as their loans can take between 30 and 45 days to close. On the other hand, a hard money loan can close in just a few days. As long as the borrower is well prepared and there are no major issues with the property in question, things can proceed very quickly. • Adjustable Payment SchedulesrnConventional mortgages do not come with much in the way of flexibility. When it comes to a hard money loan, however, lenders aren’t held back by strict guidelines and regulations, so they can offer the ability to tailor repayment schedules and other terms of the loan. • Easier ApprovalsrnHard money lendersdo take credit history and borrower experience into account, but they are not the main factor. Their main determination comes from the value of the property, making it much easier for a borrower to get approved and start working on their investment property. • Low Fees and PenaltiesrnWhen you pay off a traditional loan before its maturation date, you often can incur prepayment penalties. Most hard money lendershave small fees or none at all, meaning a real estate investor who sells fast or comes into extra money can pay off their loan on a faster timetable if they choose to do so. How Do You Get a Hard Money Loan?rnFirst, you need to know which property you want a loan for. Once that has been established, you will need to submit your information to a hard money lender to begin the application process. While all loans and processes can vary, the standard information request involves: personal financial statement, proof of income, and information regarding the property you want to obtain (or have already secured). If all is good, underwriting is next (which can often take minutes), followed by the loan closing. That’s it. You’re ready to move on that property.