Who Should Use a Hard Money Loan?

Because of various reasons, hard money loans are the primary choice for real estate investors. Fast funding needs are the primary reason to use a hard money lender. It has been seen in many situations hard money loans can be funded within a week. In certain situations, the application and underwriting process may only require one or two business days with your loan funded in a week, instead of 30 – 45 days.

Hard money loans are a good choice for borrowers when they have been rejected by the banks for a conventional loan. We all know life does not always go as we plan, so short sales, foreclosures, credit issues, etc. can happen in life at the most unpredictable times. In this type of situation, hard money lenders are the most beneficial, as banks have strict underwriting guidelines increasing the chance of rejection.

A hard money mortgage is also the right option for short term loans, like bridge loans, construction loans, fix & flip loans and other ventures, where the developer is planning to resell or refinance the property shortly after acquiring and renovating it.

Who should not use a Hard Money Loan?

Not ready to pay a high interest rate: If you are someone who is not comfortable paying an interest rate that’s higher in comparison to a traditional bank, then you should not choose a hard money loan. In a hard money loan scenario, it is common to see interest rates between 12 – 20%. In hard money lending, the lenders approve the loan by accepting a high risk. Lenders need to ensure themselves that the borrower has an incentive to pay the loan back quickly.

Looking for a low origination fee: If you choose a hard money loan option, you must be ready to pay the high origination fee. It is not uncommon for a hard money lender to charge as much as five times the amount of a traditional bank.

Forget about long term: In the case of hard money loans, 15 year or 30 year mortgage options are not an option. Hard money loans are short term loans, and interest will increase if not paid within the terms of the loan.

Fear of losing the property: The physical property is the guarantor of the loan, so if the borrower fails to pay back the loan within the given terms then the borrower must be ready to lose the property.