Curious about Hard Money Loans?

Are you curious about Hard Money Loans? If the term “Hard Money Loan” makes you think of difficult or hard-to-complete business deals, you could not be more off the mark.  Hard money loans are for people in need of fast cash and a less stringent approval process.  However, just because this type of loan offers fast financing doesn’t mean it’s a good option for everyone. Let’s examine what you should look for in a hard money loan.

A hard money loan is typically a short-term, non-conforming loan for commercial or investment properties that don’t come from traditional lenders but rather from people or private companies that accept property or an asset as collateral.

Unlike traditional mortgages or other types of secured loans, hard money loans come with a fast and typically less strict approval process, making them ideal if a purchase needs to happen quickly. With a mortgage, it often takes a month to purchase a property. With hard money loans, it’s possible to close in just a few days.

Like a traditional mortgage, a hard money loan is a secured loan guaranteed by the property it’s being used to purchase. The “hard” part of hard money refers to the tangible asset being used to back the value of the loan. When someone defaults on a secured loan, the lender can take ownership of the “hard” asset to recoup its losses.  Commercial borrowers may turn to hard money loans after having a loan or mortgage application denied or to avoid the lengthy process of getting approved for a loan through traditional means.

How Do Hard Money Loans Work?

Traditional loans are taken through the basic process: You apply for a loan, and if the lender determines that your finances meet their standards – you’re approved for the loan.

Many types of loans fall under this umbrella, including mortgage loans, auto loans, and personal loans. It is also possible to get these types of loans from private lenders that don’t have the same requirements as traditional lenders, but these private loans can be more expensive because the risk is much higher.

Traditional lenders will take a look at your entire financial situation, including your income, the amount of debt you owe, your credit history, and the size of your down payment.

These lenders go through this sometimes lengthy process to minimize the amount of risk they take on when they lend money. By ensuring their borrowers are creditworthy, lenders can offer better rates and more affordable financing.

The process for hard money loans is often much quicker and straightforward, with the lender focusing on your hard assets, such as cash reserves and the property itself.  Note that hard money loans are typically short-term loans (ranging from 1 – 3 years in length) and can be extended on both commercial real estate and residential properties. But while hard money loans can quickly help you gain access to money, you likely won’t want to hang onto them for long. That’s because attached interest rates are often quite high – think upward of 5-6% above prime interest rates.

Who Are Hard Money Lenders?

There are a variety of private individuals, online fintech companies, and specialty loan providers who can help pair you with funding.   If you search real estate directories, you will often find another source of potential matches.

What Tools do Hard Money Lenders Use?

CaptaFi loan tracking is software that caters to many hard money lenders.  Easily add brokers to your account on the fly and use user permissions to control what they see.  Use the customer portal to share documents and status with your customers.  Start your free trial today.

hard money loans
Hard Money Loans