Many people know that hard money loans are a quick and easy way to get cash for your next investment project, and those people would not be wrong. However, while this is true, there are some stipulations to remember to ensure that a hard money loan is what you need going forward.
So, let’s discuss what you absolutely need to know before signing on the dotted line for a hard money loan.
You Are Dealing With Private Investors
The money that backs a hard money loan is acquired differently than that of a traditional loan. When you apply for a traditional loan, your money is coming from the bank and will be owed back to the bank at the end of your term. However, hard money loans come from private investors or companies. This will have a direct impact on the amount willing to be lent out, the interest rates, and the terms of the loan. Fortunately, this also means that the terms will be more flexible as you are dealing with private entities rather than a large corporation.
They Are Fast – Be Prepared
A significant difference between hard money loans and traditional loans is the term period. Many traditional loan terms could be written for decades. However, a hard money loan is a much faster process. Hard money loan terms are often written for 6 to 12 months, depending on the loan. This means that the act of paying it back is a much faster process and will need to be done in a timely manner. Additionally, the time it takes to apply and be qualified for a hard money loan is much faster than when a traditional lender goes through the same process.
Interests Rates Might Vary
When you compare the interest rates of a traditional loan and a hard money loan, you might see the numbers vary. With the fast nature of hard money loans and considering that they come from private entities, the interest rates will be very different than that of a bank. Many times, you will see rates from 11-15%. It is wise to be prepared for higher interest rates, but remember that the term period is shorter and might be less expensive in the long run.
They Are Best for Specific Investment Types
If you are looking for hard money loans for your next investment, you need to remember that these types of loans are best for specific types of properties. The most common reason investors choose this loan type is that they plan to flip houses. With the fast turnaround, flippers can renovate, sell the house, and repay the loan all in a year or two. Additionally, those wanting to invest in a rental property often look to hard money loans to help them renovate. It is best to consider why you need the loan before moving forward with applying.
Hard Money Loans Are Based on the Property
Hard money loans do not solely rely on your financial status. This can be extremely beneficial to those who do not have an amazing credit score but have solid financials otherwise. When deciphering the terms of the loan, hard money loans will consider the future value of the property and what it can offer. This is essential to remember if you have had trouble obtaining loans in the past.
Hard money loans have very different rules and regulations than traditional loans, and it is essential to understand them if you are planning to flip or rehab properties. If you have further questions or wish to apply for a hard money loan, contact the team at KC Investor Funding.