Top 10 Reasons to Consider a Hard Money Loan

When it comes to real estate, financing options can be quite limited for many buyers. If you’re trying to buy a property but cannot qualify for a traditional loan from a bank, you may want to consider getting a hard money loan from a private lender instead. A hard money loan is also known as an equity loan, collateral loan, or Yankee loan. These loans are given against the value of the borrower’s personal assets such as real estate or stocks and not just their credit score like with most conventional loans.

 A hard money loan is essentially the same thing as a private lending arrangement with the primary difference being that the lender will request additional collateral in the form of real estate in order to protect their investment. Hard Money lenders tend to have much stricter terms and conditions than banks because they understand the risk involved in making these types of loans.

If you’re considering whether or not a hard money loan is right for your circumstances, this article explores some of the top reasons why you should consider them over other options:

 

You Have Bad Credit or No Credit

Bad credit or no credit can make it extremely difficult to obtain a traditional loan from a bank. If your bank account has a history of late payments and/or charge-offs, or if you have a history of financial instability (e.g. you have declared bankruptcy), the chances of you being able to get a loan from a traditional lender are extremely slim.

 You can still get a hard money loan even if you have no credit history at all. Hard money lenders are primarily concerned with the strength of your assets and personal wealth. Basically, a hard money lender is going to want to know your monthly income and how much money you have in savings.

Consider A Hard Money Loan

The Property Is in Poor Condition

If you plan to buy a fixer-upper property and then renovate it to sell or rent, there is a good chance that your bank will not lend you the money to buy the house in its current state because they will want to see a finished product. If your financial situation is strong enough that you can make the payments on a loan based on the property’s future value, you can easily get a hard money loan for the purchase price of the house in its current state as it stands.

Although hard money lenders are primarily concerned about the strength of your assets and personal wealth, they will also look at the value of the property in its current condition and the amount of work that is needed to be done in order to make it sell-ready.

 

You’re Buying a Turn-Around Property

If you plan to buy a property that needs a lot of repairs, it is unlikely that a bank will lend you the money to purchase it. The bank wants to see a property that is in great condition with very few repairs required. A bank will typically not lend on a property that has a lot of issues that need fixing.

 If your financial situation is strong enough that you can make the payments on a hard money loan for the purchase price of the house in its current condition, then you can get the cash that you need to buy it. Hard money lenders are typically more flexible than banks when it comes to the amount of repairs that need to be done. As long as you have the funds to make the repairs to a satisfactory standard, a hard money lender will be happy to extend you a loan.

 

Your Financing Has Dropped Out at the Last Minute

If you have been in the process of trying to obtain financing from a bank or other traditional lender and they decide to reject your application at the last minute, you may want to consider a hard money loan as a last-minute alternative. Hard money lenders do not care about your FICO score or the reasons why your financing fell through.

They are solely concerned with the strength of your assets and personal wealth. If your financial situation is strong enough that you can make the payments on a hard money loan, then you can get the money that you need to buy the property that you desire.

 

You Want to Avoid Rehabilitation Costs

If you want to buy a property that has significant structural damage that needs to be fixed, the bank might tell you that you have to repair the damage before they will approve your loan for the purchase price. If you cannot afford to make the repairs with your own personal finances, you will not be able to close on the property and will lose your deposit.

 If you have a strong enough financial situation that you can make the payments on a hard money loan for the purchase price of the property in its current condition, then you can avoid having to spend your own money on the repairs.

Hard money lenders are not as concerned with the condition of the property as they are with the strength of your assets and personal wealth. As long as you have a plan for the repairs, a hard money lender will happily advance you the money that you need to buy the property.

 

There’s Liability Risk with the Property

If you are buying a property that has significant environmental issues, a bank will likely not approve your loan but they might be willing to purchase the property from you as an investment. There is a chance that they will pay you more than you paid for the property.

Depending on the severity of the contamination, the bank might insure you for the risk that the property is contaminated and pay you a certain amount if it is discovered that the contamination goes beyond what was originally thought. If you have a hard money loan out for the purchase price of the property, you will have no obligation to pay the bank any amount if it turns out that the property has contamination issues. The lender of your hard money loan will be responsible for any costs incurred.

 

The Property Has Unknown Repairs Needed

If you are buying a property that needs a lot of repairs, a bank will usually not lend you money to purchase it because they want to see the repairs completed before you receive the final loan funds. If your financial situation is strong enough that you can make the payments on a hard money loan for the purchase price of the property in its current condition, then you can get the money that you need to buy it.

Hard money lenders are not as concerned with the condition of the property as they are with the strength of your assets and personal wealth. They will likely allow you to use the loan proceeds to complete the repairs as long as you have a plan for doing so.

 

Timing is Crucial to Your Plans

If you have been trying to buy a property for some time but the seller is not willing to sell to you for any reason, you may have to consider a different financing option. You can get a hard money loan to buy the property from the seller rather than from a traditional lender. If you have a strong enough financial situation that you can make the payments on a hard money loan, the seller will likely be happy to sell to you with no financing contingencies.

 If you have been trying to buy a property for a long time and have been unable to get the seller to accept your bid, a hard money loan is one of the few options that you have left.

 

Interest Rates are Higher than Bank Rates

Interest rates on hard money loans are higher than those of bank loans. If you want to buy a property and your credit score is not high enough to qualify for a loan with a low interest rate, then you might want to consider getting a hard money loan instead.

Hard money lenders are not as concerned with your FICO score as they are with the strength of your assets and personal wealth. If you have enough assets to make a down payment, get hard money lenders to finance the rest of the purchase price, and make the payments on the loan, then you should definitely consider getting a hard money loan instead of trying to get a conventional loan with a higher interest rate.

 

Wrapping Up: Should You Get a Hard Money Loan?

If your credit score is weak or non-existent, if the property you want to buy has significant structural damage, or if the seller will not sell to you because you cannot make a down payment, then a hard money loan is the best financing option for you.

Hard money lenders are primarily concerned with the strength of your assets and personal wealth. You just have to make sure that you have a strong enough financial situation that you can make the payments on the loan.

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Date
2022-08-31