Investing in Real Estate? 7 Reasons Why You Should Use Hard Money Loans

If you’re trying to stream a second income by flipping houses, consulting with an investment property mortgage lender is a beneficial step in the process. Through hard money mortgage lenders, you’ll be able to receive the renovation lending necessary to successfully flip houses while giving you added advantage and security along the way.

Hard Money Loan Benefits

Hard money loans are backed by the value of the property, not by the credit worthiness of the borrower. Rather than basing the eligibility of a loan solely on your credit score, hard money loans are obtained more so by honing in on the property you plan on investing in.

While credit scores determine the Max LTV (Loan-to-Value) and down payment amounts, they do not disqualify you from borrowing, which can be the case with traditional loans. There are plenty of benefits of using this type of investing.

1. Interest Rates

Hard money loans offer higher interest rates than traditional loans due to the ventures being riskier for the lender. This is because of the amount of capital they put in, which decreases the amount of capital invested by the borrower. Since the property itself is used as protection against default by the borrower, hard money loans have lower loan-to-value ratios than those of traditional loans as well.

2. Flexibility

Traditional loans can often be very strict and difficult to negotiate, but hard money loans are much more flexible. Lenders don’t have to use the same underwriting processes as traditional lenders. They can, however, evaluate each specific deal on a case-by-case basis, yielding more pliability. Rather than borrowing money from large corporations that won’t give you an inch of leeway, you’ll be dealing with real people who will listen to what you have to say.

3. Equity

Typically, hard money loans are used in turnaround situations, short-term financing, and by borrowers with less than favorable credit. The “real property value,” or equity, is a distinct determining factor in the context of hard money lending. Since the value of the property is an essential part in arbitrating the loan, having equity in the property is fundamental in the hard money lending process.

An additional part of the advantage for investors, who secure a hard money loan, is that they can flip the property and pay off their loan in a much faster amount of time. Hard money loans for real estate investors can offer protection as well, as most loans are secured with 30% to 50% equity

4. Turnaround

Another reason hard money loans for real estate investors are greatly desired is because of their quick turnaround. Commonly, this is between one to two weeks.

In some situations, even though a week or two doesn’t seem like a long time, if a desirable real estate opportunity presents itself, an extended closing time can lead to a major missed financial moment. As an investor, you want to be able to receive loans as quickly as possible — hard money loans offer that immediacy.

5. Length of Loan

Again, it depends on the lender and each specific situation, but the average hard money loan lasts from three months to a year. Although, the interest rate may be subject to adjustment with lengthier loans, but each loan is uniquely originated in hard money lending.

6. Better Ways to Qualify for Loans

Hard money loans don’t follow the same guidelines that traditional lenders abide by. Not every investor is going to want to rely exclusively on their credit or taking out a second mortgage, so hard money loans could be a preferred option for real estate investors.

7. Better for Foreclosure Renovations

Although hard money loans can be used for traditional, long-term rehab projects, these loans are accommodating in foreclosure renovations. As recent as 2014, there were 327,069 home repossessions that could be used for renovation projects. Hard money loans are a considerable way to immediately secure these properties and then refinance.

If you’re thinking about building a successful second income flow, and want to learn more about renovation financing and hard money loans for real estate investors, contact Growth Investments Ltd : GIL today!