Hard Money Loans: What's Different About Them and What They Are

what are hard money loans

Approximately 80% of Americans have some form of debt. If you're interested in getting a loan, you may have heard of hard money loans. But what are these loans, and how are they 'hard?'

A hard money loan is a little different to a normal loan. Read on to learn out how they're different, and whether this type of loan is right for you.


What Are Hard Money Loans?

When we're talking about hard money loans, we're typically referring to real estate. A hard money loan allows you to borrow without needing to use a traditional mortgage lender. 

This is usually the type of loan you'll take out if you need a loan super quick, or you know a traditional lender wouldn't approve you for a loan. 

When you apply for a loan, most lenders want to see proof that you'll be able to pay that loan back. This means looking at your income and credit score. When you have a solid credit history and a low debt to income ratio, lenders will approve you for that loan.

This can take a long time - especially if your credit report has negative items. That's why many people choose hard money lenders instead.

A hard money lender is lending to you based on the collateral that will secure your loan. That means that they're not as concerned about whether or not you can repay the loan. If you can't repay your loan for any reason, that lender will take your investment (their collateral) and sell it. They care more about the value of that investment than your financial position. 


Is a Hard Money Loan Right For You?

Generally, hard money loans are for the short-term. Usually, this will be less than five years. The interest rate is usually higher for these types of loans since borrowers are often a riskier bet for the lender.

These loans are generally most suited if you're unable to get a traditional business loan when you need it. These types of loans are usually closed much more quickly than traditional loans. 

That's because lenders don't need to spend as much time going through your application, reviewing your bank statements, verifying your income, and checking your credit history. 

A hard money loan is also often a more flexible option. Since most lenders don't have a one-size-fits-all underwriting process, you can often negotiate your repayment schedules and interest rate. 

If you can't afford to be denied a loan, hard money loans are often the best option. That's because you're much more likely to be approved- as long as your property is seen as a good bet. 

These loans are often more expensive than traditional loans. Interest rates are usually much higher, and you can often expect higher fees. 


Wrapping up

If you need money in a hurry, or your credit history isn't in the best shape, a hard money loan may be a great option. Be sure to compare lenders to ensure you get the best possible deal, and avoid borrowing more than you can afford. 

Looking to learn more about financial health? Check out our Money Maximization posts today.

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