Hard money loans are an important alternative to bank loans when you want to buy property or use a property you already own as collateral. Hard money loans are based upon the property’s value instead of the borrower’s creditworthiness. Typically, you can borrow up to 70 percent of a property’s value via a hard money loan, although it varies with circumstances. Normally, the term of a hard money loan is a year or less, but sometimes a longer loan can be set for two to five years. You make monthly payments of mostly or exclusively interest, and a balloon payment at the end.
So why use a hard money loan instead of going to a bank? There are two answers: speed and access.
1. Speed: Companies like SLG can arrange a hard money loan in about a week. If you go to a bank, you’ll probably be cooling your heels for 30 to 45 days or longer. If you are buying a primary residence, are not in a rush and have good credit, by all means take out a mortgage from a bank. But for developers and builders who need to move quickly, hard money loans are an ideal solution.
2. Access: Banks perform an exhaustive credit check on potential borrowers. They want to know whether you missed a credit card payment six years ago, much less ever went bankrupt or were involved in a foreclosure. Banks are all about creditworthiness. Hard money lenders are all about collateral. All we want to know is what the property is worth. Many folks who flip houses or build new ones may not qualify for bank loans, but are more than welcome by hard money lenders.
When does speed matter? It depends on the deal. If you are looking to acquire a property to redevelop and are fending off other bidders, access to quick capital can seal the deal. There are a number of situations in which a real estate investor needs to act quickly. Whether or not you have credit issues, hard money loans make capital available quickly. Banks, not so much.
If your business is to fix and flip residential housing, you don’t want or need a 30-year mortgage to finance the property, because your plan is to get in and out in well under a year. That timing is perfect for a hard money loan. Perhaps you need a bridge loan, a land loan, or other short-term loan. Hard money loans move quickly, and because you can arrange interest-only repayments, these loans fit well when cash flows are tight.
It’s true that hard money loans have higher interest rates. That’s natural, since the lender is underwriting risk without reference to the borrower’s creditworthiness. But for many deals, the cost of these short-term loans is dwarfed by the potential for profit. Specialty Lending Group hard money loans are quick and hassle-free. When you need capital right away to finance a real estate opportunity, let SLG be your source.