A hard money loan, often made for a real estate transaction and secured by real property. The lender is generally an individual, investor, or company rather than a bank or traditional mortgage lender.
How Does a Hard Money Loan Work?
This loan is provided by a lender who approves and funds a loan based on the value of the property being used as collateral for the loan. Traditional lenders, on the other hand, evaluate your credit score and your income, savings, or other collateral to determine your ability to repay the loan. A hard money loan is typically a short-term loan, with a term of one-to-three years.
What are the Uses of a Hard Money Loan?
Use a hard money loan for land loans, construction loans, and fix and flip loans. A real estate investor might use a hard money loan if he/she can’t secure conventional financing.
Pros of Hard Money Loans
A hard money loan offers these advantages compared to a conventional loan:
It can close more quickly. The lender likely won’t expend as much effort examining the application because they are focused on the value of the property used as collateral.
Developing a relationship with a hard money lender can lead to other funding opportunities for additional real estate transactions.
A hard money loan may be more flexible than a conventional loan. Offering opportunities to modify the repayment schedule or other features.
Cons of Hard Money Loans
The cons of a hard money loan include:
Interest rates are generally significantly higher than a conventional loan. Plus, loan approval may also require closing costs or other fees.
A short time frame offers the risks of a cash flow squeeze if property plans go awry.
A more substantial down payment than expected may be required from the lender.
Seek Expert Financing Assistance
Contact Porter Capital Group based in Southlake, TX. Get a wide variety of commercial loans and other funding options without the usual hassles.