Securing a loan from the banks often follows a long and tedious process. Sometimes, these loans take up to months before crediting. Or even worse, they may not go through due to bad credit scores. For people with rental properties, there are several ways of securing a loan. One of the options is a hard money loan.
We’ve broken down everything about these types of loans. That is, from how they work to how you can find a suitable lender in the market.
Table of Contents
How Hard Money Loans Work
Hard money loans are asset-based loans offered by a private investor. Instead of going for a long-term mortgage, you will go for a short-term loan from a hard money lender. So, who are hard money lenders? In simple terms, these are private companies that will finance large expenses using your property as collateral.
These loans are common among real estate investors. Or the fix-and-flip investors looking to buy rental properties that the banks may not. Such properties could have high vacancy rates. Or need major repairs before going to market. Either way, borrowers will go for this hard money if they cannot secure conventional loans. That could be due to a low credit score, poor credit history, undergoing foreclosure, or bankruptcy. Some of the benefits of a hard money loan include:
- Faster loan processing.
- They don’t require a lot of paperwork.
- No strict qualifications such as credit score.
The only drawback is that you’ll have to pay higher rates with shorter repayment periods. You can balance this out by finding a lender that offers relatively lower rates. If you default on a hard money loan, the lender can sell the property to recoup the amount.
How to Find Hard Money Lenders
Hard money lenders for real estate are everywhere. You just have to look in the right places. Here is how you can find them.
1. Do a Google Search.
Simply search any of the following phrases. “Hard money mortgage lenders near me,” or “private money lenders near me.” You’ll get a ton of information about hard money lenders within your locality. When doing the research, be wary of fake sites. Only sort out those sites that have a positive track record.
2. Look Within Your Network.
Another way of finding hard money lenders is to look within your network. Real estate investor clubs are a typical example. Be sure to attend club meetings and ask more about the best private money lenders in your area. Identify those companies that the other real estate investors have highly recommended.
3. Browse Social Media
Social media platforms are another great place you can find hard money lenders. If the results you get from Google searches are too inconclusive, this is a better way to go. Sites such as Facebook and LinkedIn are a great place to start.
How to Choose the Right Hard Money Lender
Choosing the right hard money lender for real estate can be challenging. To land on the right lender, you need to do your homework. Here are some things to consider when choosing a hard money lender.
1) Industry Experience
Trust and reputation are good indicators of a genuine business partner. Before making up your mind, check the lender’s online reviews. You can also engage and consult their past clients across social media. That way, you will rule out scammers and unsuitable lenders.
2) Loan Rates and Repayment Terms
Generally, hard money loans attract higher interests with shorter repayment loans. Some lenders have tried to bridge this gap by offering better rates and terms. So, your work is to find such lenders and close the deal. Where possible, use a hard money loan calculator to compare the interests of different lenders.
3) Loan Processing Speed
One of the reasons for choosing a private lender is speed. If a lender takes more than 15 days, then that becomes inconvenient. The best lenders will process your loan within one a week. That gives you the convenience of running your errands as soon as possible.
4) Customer Experience
Not many lenders have an outstanding customer experience. A rule of thumb is to pick a private lender that will work closely with you. The best ones will explain how their products work before getting you to sign the paperwork. That ensures you understand all the terms and conditions before committing to the loan.
Get Hard Money Quickly and Conveniently
Hard money loans are a great option for people who need urgent financing. That is, especially if they cannot secure a loan from the banks due to bad credit. The advantages of these loans include faster processing and less paperwork. The loan comes with slightly higher rates, but you can still make a good return out of it if you evaluate the lenders thoroughly.
The best way to do this is to check the company’s reputation with some trusted review sites. You can also follow the company on social media to see if they have an active audience. More often, this will tell if the lender is credible.
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