If you’re looking for financing for your next real estate project, you may have come across the term “hard money loan.” But what exactly is a hard money loan? In this blog post, we’ll answer that question and give you 10 facts you should know about hard money loans.
A hard money loan is a type of short-term loan.
The terms of the loan are also shorter, usually lasting from six months to three years. These loans are often used for projects that require a large amount of capital in a short period of time or when other financing options may be unavailable due to personal credit score or cash assets.
Hard money loans are typically used for real estate investment projects.
The loan is secured by the real estate property, which means that if the borrower defaults on payments, the lender has the right to seize and sell the property. This is beneficial for borrowers who don’t have the assets to use as collateral.
The loan is secured by the value of the property being purchased.
Hard money loans are based on the value of the property being purchased, rather than a borrower’s credit score or income. This makes it easier to qualify for a loan, provided that your project will generate enough revenue to cover the loan payments.
Hard money loans are typically more expensive than traditional loans because they are higher risk.
The interest rates for hard money loans are typically higher than those for traditional loans because of their short duration and lack of collateral. However, the terms may be more flexible, which can make them ideal for borrowers who need capital quickly.
Hard money lenders will also often charge points, which are a percentage of the loan amount that is paid up front.
These points can be used by the lender to cover administrative costs or to compensate them for taking on a higher risk loan.
Hard money lenders may require a personal guarantee from the borrower.
A personal guarantee is a legal agreement in which the borrower agrees to personally repay the loan if the property can’t be sold. This is often required for borrowers who have bad credit or limited assets to use as collateral.
Hard money loans are not regulated by the same laws as traditional loans, so it's important to do your research and choose a reputable lender.
Before signing a loan agreement, carefully read the terms and conditions of the loan. Make sure that you understand all the fees associated with the loan, as well as any penalties or late payment fees.
Hard money loans can be a great option for real estate investors who need financing quickly or who might not qualify for a traditional loan.
Some hard money lenders can provide your with funding in as little as 1 to 2 business weeks. Working with experienced lenders tends to get you funded quicker.
It's important to have an exit strategy for your loan so that you can ensure that you pay the loan back on time.
An exit strategy is your plan to pay back your loan in a timely manner. This includes how much time you have to sell the asset and finish paying off your loan.
Finally, you want to make sure to work with an experienced hard money lender.
Do your research to find the lender with the best google reviews and reputation in the industry. Working with a reputable lender will make all the difference in your experience with hard money loans.
If you’re thinking of applying for a hard money loan, we hope this blog post has given you some helpful information. Remember to do your research and make educated choices when it comes to your investments. FlipCo Financial is here to help educate and fund future investors for their real estate investment. We are a premier hard money lender that is funding hundreds of projects a year. Contact us today for more information.