What Is a Hard Money Loan?
Numerous forms of financing are available for people looking to fund their investments. That said, some forms are better than others. This is especially true when you’re considering the plethora of different ventures that might need financing.
One popular option among these numerous options is known as a hard money loan. But what is a hard money loan, exactly? Explore our quick overview to find out.
What Is a Hard Money Loan?
Before we delve into the finer details, you should understand some fundamentals about hard money loans. In its most basic definition, a hard money loan is a short-term loan secured by real estate property rather than by a borrower’s creditworthiness or more traditional criteria. This loan is generally of best use in real estate transactions. And typically, the lender is either a private financier or company. This is because significant financial institutions such as banks have no interest in offering loans of this nature.
Hard money loans have a standard life span of one to three years. They’re attractive choices for people looking to collect money quickly.
How Does It Work?
Now that we have a firm grasp on what exactly hard money loans are, we can start to build a more definitive answer to the question, “What is a hard money loan?” As we mentioned, private lenders usually offer hard money loans. For this reason, factors such as your creditworthiness don’t play a role in whether or not you qualify for a hard money loan. Instead, your loan securement comes from the property or assets you have readily available.
However, this doesn’t mean your lender won’t do their due diligence by ensuring you’re good for the money they’re investing. Some of the factors your lender might consider in the application process include:
- Your home equity
- Your debt-to-income ratio
- The loan-to-value ratio
Of course, because you’re receiving this loan from a private party, they get to choose for themselves which aspects of your finances they’ll evaluate before they approve you. But once you’re approved, a hard money loan has a famously rapid turnaround time. Of course, this rapidity comes with higher interest rates and origination fees.
What Is It Best Used For?
The fast turnaround times and less stringent approval criterion make hard money loans great for real estate and property investment ventures. This isn’t to say you can’t use them for other types of transactions. However, it can be difficult for the average homeowner to pay off a mortgage three years after closing. That’s why hard money loans are often most attractive to people looking to fix and flip homes for a quick profit. They can also be beneficial options for property investors or would-be landlords looking to renovate quickly.
Essentially, hard money loans are best for people who know they’re going to make a large enough profit in three years to be able to pay back what they owe, plus interest, to their private lenders. If this sounds like you, this type of financing might be the perfect fit for you. And if you happen to do your business in Sin City, give Streamline Mortgage a ring. We’ll answer all your questions and set you up with a hard money lender in Las Vegas that can make your real estate dreams a reality.