Hard money loans are one of the most common types of loans for real estate investors looking to fix and flip or rehab a property.
However, with the long list of benefits that come with hard money loans, real estate investors might lose focus on whose money they are actually loaning when it comes to their next investment project. At the end of the day, the source of funding is the reason hard money loans have such great benefits to real estate investors.
So, here is everything real estate investors need to know about whose money you are actually loaning in a hard money loan.
Hard Money Loans Are Funded Privately
Hard money loans are short-term loans mainly utilized in real estate investments and are primarily funded by a private investor. This means that the hard money lender you work with is partnered with a select group of private investors to help fund the loans that are being issued.
Each private investor will have their own underwriting process and will require their own contract through the lender itself, but even with all of that said, obtaining a hard money loan funded by private investors can be a faster, more straightforward, and more beneficial option for real estate investors.
Hard Money Loan VS Traditional Loan Funding
Hard money loans and traditional loans come with a lot of differences to account for when considering which to choose for your real estate investment. However, when focusing on where the funding comes from, the difference between them grows.
Traditional loans get their funding from bank institutions. This alone presents various obstacles that real estate investors must overcome in order to obtain the loan. These obstacles can take a considerable amount of time, whether that is the application itself or the approval process, as traditional loans require a more in-depth examination of the real estate investor’s financial situation. Traditional loans are not only a longer process to obtain, but they may be less of an option for many real estate investors.
Hard money loans, since private investors fund them, offer greater flexibility and collaboration in the approval process, as all parties involved in the funding and acquisition processes are present. As stated, the funding from hard money loans is the basis for many of the benefits associated with hard money loans.
The Benefits That Come From Utilizing Private Investors
One of the initial benefits of utilizing hard money loans is that they are easier to obtain. With private investors funding hard money loans, the underwriting process is simplified and requires fewer criteria to meet. This means that while financials are looked at, there is more riding on the value of the property itself rather than your financial history.
With private lenders being behind hard money loans, the loan itself has the opportunity to be more flexible within the agreed-upon terms. Unlike a pre-written term agreement like many traditional lenders, hard money loans offer a conversation.
Hard money loans are also much quicker to close. You can apply and obtain a hard money loan faster than traditional loans, allowing you to act fast on real estate properties and not lose out on possible investments.
How to Choose a Hard Money Lender
Hard money lenders are going to offer faster, more flexible, and more obtainable loans to your real estate investment because of their private investors, but it is your choice on which lender you partner with.
When you have a list of hard money lenders to choose from, it can be beneficial to learn more about the private lenders they utilize and ask about their previous investments and the terms that have been agreed upon. This allows you to determine if it aligns with your current investment needs.
Additionally, it doesn’t hurt to assess community reviews and testimonials to see how other investors in your location felt about the lender. This is also your opportunity to compare the interest rates and fees of hard money lenders, as well as review their application process. Before stepping into a deal, you want to ensure it is right for your real estate investment.
Why Real Estate Investors Choose Hard Money Loans
Real estate investing is a fast-paced and constantly evolving industry. If you are looking to expand your portfolio and get into real estate investing, it could be beneficial to look at the choices most real estate investors make when looking for funding and check out hard money loans.
Hard money loans are built for a fast-paced world. They can keep up with the needs of real estate investors while also keeping up with the real estate industry. That is all made possible by the use of private investors funding the hard money loans. Private lenders make real estate investment goals a reality.
If you have further questions or wish to apply for a hard money loan for your next real estate investment, contact the team at KC Investment Funding.