A loan can be a lifesaver to an investor trying to secure an asset with limited funds. However, many potential investors need to be aware of the types of loans and thus expand their options. But knowing your options can help you achieve better results in the real estate market. Besides traditional bank loans, there are many ways for a potential investor to finance their house.
In this article, we will highlight one of the lesser-known methods, a hard money loan. It’s a specific type of financing where the borrower agrees to put down collateral in exchange for the required funds.
If you’re unfamiliar with this sort of financing, you might wonder, ‘when should I refinance a hard money loan, and what benefits do I stand to gain by using this method?’ Well, stick around till the end of this article to find out more.
Top 3 Benefits of Getting a Hard Money Loan
They Are Super Convenient
Traditional bank loans are often lengthy processes that can take 4- 6 weeks to get approval. If you’re in a rush to secure an asset, this timing might be unappealing for you-especially with no guarantee of a yes. On the other hand, hard money loans offer investors a lot more convenience with their reduced requirements and shorter application time.
They Have Fewer Requirements
Another benefit of getting a hard money loan is that it’s easy to find an ideal lender. Private money lenders are much less likely than traditional counterparts to say no to you. Also, unlike conventional loans that require lengthy verification and credit evaluation, hard money loans are more flexible. For many lenders, having collateral that offsets the amount you want is enough for approval.
They Have More Flexible Terms
Unlike conventional loans backed by bankers, private lenders dominate the field of hard money loans. In other words, the application process doesn’t have as much rigidity and offers customers more wiggle room.
Thus, consider a hard money loan if you’re looking for more flexible terms than a traditional loan. If you’re a good negotiator, you could arrive at a deal that is better suited to your needs. Remember that you’re free to discuss various terms of the agreement, including the interest rate, repayment schedule, and the underwriting process.
When Should You Refinance a Hard Money Loan
When You Have Collateral
Traditional loans often require that investors make a 20% minimum down payment. However, it can be difficult for some aspiring homeowners to raise that cash. Sometimes all you might have is collateral such as a car, house, or another personal asset.
Since hard money loans allow investors more leeway, you can stake your collateral to secure the mortgage. Some lenders would even be willing to let you use the property in question as collateral. In that case, failing to repay would mean losing your investment but nothing else. Still, this type of loan can be tricky, so you must read the terms of the contract.
When You Have a Low Credit Score
A hard money loan could be an excellent option if you have problems qualifying for a conventional loan because of your low credit score. In addition, unlike banks with stricter regulations, these lenders can offer loans at their discretion. Thus, if you can prove you’re a reliable candidate in other ways, there’s no reason you won’t secure their backing.
Since credit score and debt-to-income ratio weighs little in their decision, you could still be a viable borrower. You could make a compelling argument for your case with the right collateral and negotiation skills.
When You Need Quick Financing
A hard loan can be your saving grace if you’re pressed for time. Unlike traditional loans that take several weeks to get approval, you can secure a hard money loan in less than a week. In addition, since credit scores and income history don’t weigh heavily on your application, private lenders can swiftly evaluate and reach a decision. That allows you to secure your investment quickly or find an alternate source of financing if you need something else.
The time-saving nature of hard money loans is often why large-scale investors flock to them. After all, when you have a big project, delayed timelines could be detrimental to the completion.
When considering a loan, it’s essential to evaluate all your options. For investors that struggle to get approval with traditional financing, a hard money loan is often a good fallback. Speed, flexibility, and higher chances of approval mean you’re sure to get the cash you need conveniently. Although you risk losing whatever collateral you put on the line, as long as you keep your cash flow positive, you’ll get it back.
You can hire an expert if you need help managing your property and ensuring it remains profitable. A professional property manager can help you budget properly and help you achieve your rental business goals.