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Hard Money Loan: Pros, Cons And Definition

Posted by admin on December 28, 2022
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Hard money loans have become more popular in the real estate industry since they are considered short-term bridge loans because the process is simple and shorter. Hard money loans rely on collateral and not the applicant’s financial position. Hard money loans are mostly used in real estate transactions, with the lender being individuals, organizations, or companies, not banks. As exciting as these loans may look, there are many things to consider before securing a commercial hard money loan. This article looks at ‘What is a Hard Money loan’ and the pros and cons.


What is A Hard Money Loan & How Do They Work?

The most recurring question among investors is, What is a hard money loan? Hard money loans are short-term, non-conforming loans for real estate, commercial, or investment properties. The distinguishing factor is that, unlike commercial loans, hard money loans don’t come from banks but from individuals or private institutions that accept assets such as property as collateral. Many commercial borrowers have turned to hard money loans as acquiring the loan is easy, unlike traditional lenders. A hard money loan is usually secured and guaranteed by the property used as collateral, and in case the borrower defaults, the lender can sell the asset to gain back the money. Unlike the traditional mortgage, which takes over a month to complete an application process, commercial hard money loans can close within a few days. In hard money loans, the lender approves a borrower to access a loan based on the value of the purchased property. The background check process in hard money loans is also less vigorous compared to traditional loans.


What Are Hard Money Loans Used For?

Commercial hard money loans are mostly used in investing in the real estate sector. Some of the most common places hard money loans are used include:


Acquiring Investment Property

Most people seeking to invest in rental property but cannot access loans from traditional institutions occasionally turn to hard money loans to finance their investments. This option comes in handy, especially if you require more money than a bank is willing to offer or traditional lenders cannot approve your application due to your credit history. You can use hard money loans to acquire amazing property at Unique Properties, Inc.


Acquiring Commercial Property

Like the former, entrepreneurs may turn to hard money loans to finance commercial real estate if they need help securing funding from banks. Likewise, you may use Hard money loans to acquire commercial properties at Unique Properties, Inc, even if you don’t qualify for financing from traditional lenders.

 Hard Money Lenders: What to Know About Working With Them


Apart from understanding ‘what is a hard money loan,’ it is equally important to know how to work with hard money lenders. It is important to note that you will not find hard money loans in traditional lending institutions like banks. Most hard money lenders are generally wealthy private individuals or corporate companies in this type of lending. Unlike traditional lenders, hard money lenders are not subject to the same rules and regulations; hence they can set their threshold of the credit scores or debt-to-income they look out for from borrowers. Hard money lenders may issue you a loan even if your credit score is low or banks have denied you. The hard money lenders look out for the value of the purchased property, not the borrower’s creditworthiness. At Unique Properties, Inc, we have amazing properties that might intrigue hard money lenders to issue you a loan easily.


The Pros And Cons of Hard Money Loans

After understanding ‘what is a hard money loan,’ you must also be aware of the advantages and disadvantages of this type of loan.


Pros of Hard Money Loans

The first advantage of a hard money loan is that the approval process is much faster than the loans issued by traditional lenders. Hard money lenders focus on the collateral, not the borrower’s financial capabilities. The loans are usually convenient and flexible, allowing investors to acquire property even if their credit score is low. 


Cons of Hard Money Loans

The biggest disadvantage of hard money loans is that they usually have high-interest rates. Hard money lenders also require larger down payments to issue you a  loan. In addition, hard money loans are riskier than traditional ways of acquiring a loan. Commercial hard money loans have shorter terms, meaning that entrepreneurs have less time to repay the loan or risk losing the property. 

Image Credit / Shutterstock / Jack_the_sparow

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