Website design By BotEap.comHard money loans are an alternative way to get money that many people are unaware of. When you urgently need a loan and your bank or credit union turns you down due to poor credit or other reasons, hard money lenders can lend you the required amount for up to 10 years (or longer depending on the circumstances). They look at your assets, not your credit; therefore, hard money lenders may be an alternative to consider. Here are some advantages and disadvantages of hard money loans

Website design By BotEap.comAdvantages of hard money loans

Website design By BotEap.com1. Fast Process – Banks take at least 60 days to complete the process. The typical hard money lender will deliver the loan to you within 1-2 days. Local lenders who know you can even get you the funds that same day. This works particularly well for you if you need the money for some quick purchases, for an emergency need, or for other situations, such as when you want to continue construction to sell your property. It also helps you impress the buyer when they want to jump in front of an offer queue to get a certain property.

Website design By BotEap.com2. Less Paperwork: Banks and traditional lending institutions tend to take you through a grueling underwriting process that involves signing long, complex forms and then waiting at least a month to see if you’ve been approved. Hard money lenders give that up. Each has its own system and each deals with borrowers individually. Borrowers therefore tend to sign only a few forms. Lenders will ask you a few questions and may review your credit history. The Dodd-Frank Act of 2010 states that lenders must ensure that borrowers can repay; that they are not charged huge interest rates; and that no more than two prepayments are charged (depending on the circumstances). Lenders evaluate each application differently and draw their conclusions based on your property’s value rather than your credit. So even if you have bad credit, you may be able to get a hard money loan. The lender focuses more on the value of your property than on your credit.

Website design By BotEap.com3. Flexible Terms: Banks can require regular payments. The lender is easy on you and often gives you flexible loan repayment terms. (Again, this depends on the specific lender.) So, if times are tough, you can get by with just paying interest each month or just paying the balloon repayment at the end. This makes it easier for you in the long run instead of making you make a hefty payment each month.

Website design By BotEap.comDisadvantages of hard money loans

Website design By BotEap.com1. High Interest: Hard money lenders charge triple the amount banks charge, and sometimes even more than that. Lenders can sometimes be capricious about their interest amounts, so it’s important to shop around. Some lenders may offer comparatively reasonable rates, but we suggest you negotiate as lenders know they are your last resort and may charge accordingly. Some state usury laws, such as those in Tennessee and New Jersey, prohibit hard money lenders from charging excessive interest. Residential borrowers may avail themselves of further protection under Consumer Regulations and the Dodd-Frank Act. If you are a commercial borrower, you should be more careful as the loan terms are more aggressive and you receive less protection.

Website design By BotEap.com2. Low Loan-to-Value Ratio: Loan-to-value ratio is how lenders determine how much money you will get. For example, with a loan-to-value ratio of 70%, the lender will give you $70,000 for a $100,000 property. Lenders usually give only 60% or 50% of the required amount, which means you’ll have to look elsewhere for the rest.

Website design By BotEap.com3. Difficult to locate: An honest and efficient lender can be difficult to locate. You can find hordes of money lenders online, but each lends only to one or a few states and are certified to lend to the states they deal with. You may have few or none of your preferred lenders (or serve your type of loan) in your region, and you may have to travel to get the services you want. In all cases, make sure the lender is licensed by the National Mortgage Licensing System (NMLS) and through your state regulatory agency.

Website design By BotEap.comIn shorts…

Website design By BotEap.comHard money loans can be great for you when you need them at a critical time and you can’t get the money from anywhere else. They have relaxed approval standards, are quick to obtain, and involve little paperwork. On the other hand, they have a low loan-to-value ratio and a high interest rate. If you have good credit, you may be better off with a traditional loan. Consider hard money only if you have a pressing, short-term need with few or no alternatives.

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