An investor wishing to beat a strict deadline on a deal is better off using hard money lenders instead of the conventional lenders. Of course just like in the bank situation, hard money loans have a process that must be followed. The major advantage over other traditional lending methods,however, is that they have fewer qualifications, take a shorter time to process and loan amounts are negotiable.
Unlike the bank situations where a strong collateral as well as credit score determine whether a client obtains lending or not, hard money lenders only need to ascertain that an individual has sufficient collateral and the project for which the money is meant to fund is viable. After that, an investor can get money within a week or less.
An individual who has had a recent foreclosure may not avail proof of loan repayment to a conventional lender. The same is different for a hard money lender. Even with a very poor credit score, a hard money lender is able to extend credit to a client so long as there is surety of repayments. This basically means that one’s credit rating does not affect the amount of borrowing a hard money lender can offer.
Most times, people ask about those who really need hard money loans. Well, they are best for real estate investors and house flippers. Here are occasions when to apply for this type of lending:
- When there is a deal that may be time barred if one wastes a week or two.
- When an individual needs a large amount of money that conventional lenders are not ready to offer.
- When one has a poor credit rating but still needs to make investments.
- When a borrower has defaulted on a previous loan with other lenders and is still in need of lending to strike a deal.
Although the interest rates charged on hard money loans is higher than that of the banks, there are various advantages a borrower enjoys when using this type of credit. These are:
- Simple processing of application and quick approval. Hard money lenders know how time is crucial for applicants and rush to meet those deadlines.
- Little scrutiny of an applicant’s financial situation. Unlike in the banking situation where a client’s tax returns, income and credit score get a thorough scrutiny, hard money lenders rarely do this.
- Borrowers are not humiliated because as long as there is collateral, funding is availed.
- Most banks and other financial institutions prefer to extend loans only to people who are officially employed and have a steady monthly income. This is different with hard money lenders as they avail loans to all cadres of professionals.
- Huge amounts of loans are granted based on property value.
As it is, hard money lenders can use residential and commercial property as security. However, they often shy on the use of owner occupied buildings as these have lots of thresholds attached to them as the law requires. Commercial property that can act as collateral includes office buildings, shopping centers, hotels and land meant for development activities.