If you’re just starting in the world of real estate investment, you might have come across the term hard money loans. These hard money loans are central to any real estate investment process and come in handy when investors are looking to finance potential real estate transactions.
However, hard money loans aren’t that simple to comprehend. To make it easier for you, we break down everything you need to know about hard money loans. From private money lenders to investors seeking these bridge loans, our blog gives you a rundown of the whole process from the beginning till the end!
Hard Money Loans—What Are They?
Simply put, hard money loans are asset-based loan financing options usually secured for real estate transactions.
The hard money loan process is a relatively straightforward and uncomplicated process that entails a borrower, a private lender, and a collateral property. The borrowers submit their hard money loan applications and are reviewed by experienced underwriters. These underwriters evaluate the collateral value, the property’s value and condition, and the borrower’s repayment strategy.
Private Money Lenders To The Rescue
What sets these hard money loans apart are the lenders that make these loans to real estate investors or borrowers.
Traditional mortgage banks or commercial banks don’t make hard money loans; these are actually made by private lenders or private institutions.
These private lenders review hard money loan applications through an underwriting process. Rather than considering the borrowers’ financial standing or creditworthiness, private money lenders are more interested in the value of the collateral that will be securing the loan.
Moreover, private money lenders evaluate a borrower’s level of commitment through their eagerness to put down a larger down payment for the potential property. This conveys the message that the borrower is genuinely interested in investing in the said property.
In addition, private money lenders might be interested in lending out hard money loans to investors or property flippers with a successful history of purchasing low-cost properties, rehabilitating and fixing the space, and reselling with a decent profit.
How Do Hard Money Loans Work?
Private lenders make hard money loans against a collateral asset. These loans are short-term loans that need to be repaid within a few months (most private lenders give a 12-month repayment period to borrowers).
Since private lenders are more interested in the collateral and the ARV or the ‘After repair value’ of the real estate property, these private lenders benefit even if the borrower defaults on their payments.
Moreover, since private institutions or lenders make these loans, they are highly flexible, and they can work the terms around to suit the borrower’s repayment strategy.
Hard Money Loans—Who Are They For?
Since hard money loans feature shorter repayment terms, these loans are ideal for fix and flip investors.
Real estate investors who specialize in property flipping need real estate financing on an urgent basis, refurbish or renovate these properties within just a few months, and make an immense profit by improving the property’s value and reselling it.
Moreover, potential homeowners can benefit from a hard money loan. They can secure the loan to buy a home quickly and consider a refinancing option as soon as they find a better loan option for themselves. Similarly, investors looking to borrow raw land loans or construction loans or just need a quick real estate financing option for a short time can all consider going the hard money route.
Pros And Cons
To consider hard money loans or to forgo them is the real question.
Before you forward your hard money loan application to an underwriting expert, ensure that you’re aware of the pros and cons of the process. Getting a rundown of the pros and cons of hard money loans will help you make an informed decision regarding the real estate investment process.
How Do Hard Money Loans Benefit The Borrower?
Here’s how hard money loans can benefit real estate investors and borrowers in their real estate financing.
High flexibility: Since strict regulations or policies don’t bind private lenders, they can display some leeway and work out a flexible repayment plan.
Quick process: Almost all private lenders are more concerned with the collateral value and ARV of the property. This is what makes the hard money-leading process fast and efficient. These lenders are likely to skip past investigative processes such as reviewing bank statements, delving deep into credit histories, and verifying income resources.
What Are The Cons To Securing A Hard Money Loan?
Hard money loans are highly convenient to borrowers. However, they don’t come without a few drawbacks.
Shorter repayment periods: While shorter repayment periods might be suitable for most real estate flippers, these properties can take longer to fix and find the right buyer. This is why it’s crucial that borrowers evaluate the property’s condition, know how long it’ll take to fix it, and discuss the repayment periods with the lenders.
Costs: While hard money loans are easier to secure and repay, they can come with high interest rates. Most private lenders feature interest rates of 10% or even more to make more profit from the transaction.
However, certain private lenders such as Commercial Private Equity offer interest rates as low as 9.5% and have no application or processing fees!
A credible private money lender can help real estate investors finance and secure a real estate property in no time. If you seek a private lender that’s quick, efficient and guarantees transparency throughout the lending process, then Commercial Private Equity is the right choice for you!
At Commercial Private Equity, our expertise lies in hard money loans, commercial bridge loans, refinance and investment, and construction transactions. We offer a streamlined and simplified application process, up to 60% LTV, and interest rates starting as low as 9.5%!
Get in touch with us to learn more about our commercial bridge loans and hard money loans and secure real estate properties within a few days!