When does a hard money loan make sense?
In the real estate arena investors keen to quickly snatch up property will often rely on hard money loans. These are usually shorter-term financing options provided by private companies or private lenders. These loans are backed by the value of the property that is either being purchased or is currently owned as opposed to the buyer’s individual credit score and tax returns.
Since it’s no secret that investors generally write off every expense they can (within the confines of the IRS guidelines) this greatly reduces the investor’s income—on paper which in turn makes getting a traditional loan much more difficult if not impossible. Thus, hard money loans serve a critical function when mainstream conventional loans are unattainable.
- Quick access to capital
- Flexible terms
- Asset-based approval
- No credit score focus
How do hard money loans differ from No Doc Investment Loans?
Bridge Loans
Also short-term loans that cover the gap in time between a property purchase and the sale of an existing property. The bridge loan would be attached to the value of the existing property and may have a lower interest rate compared to a hard money loan.
No Doc Investment Real Estate Loans
As per the name, these loans are NOT underwritten on the borrowers’ financial records, although the credit score can play a factor. Hard money lenders tend to exclusively look at the borrowers’ property value and assets without scrutinizing credit scores.
How do hard money loans differ from No Doc Investment Loans?
Small Business Financing
Real estate owners who don’t qualify for traditional business loans due to brief time in business or bruised credit can tap into property equity to expand businesses, purchase inventory, or cover operational expenses.
Debt Consolidation
Investors with multiple mortgages can leverage a hard money loan to consolidate debt, streamline payments, and free up capital for other investment opportunities.
Purchasing Distressed Properties
Snatch up foreclosure and short sale properties at reduced prices, fix them up for profit, or refinance into a traditional loan once fully rehabilitated.
Emergency Repairs
Quick cash for unexpected repairs or renovations like damaged roofs, updating faulty amenities, or addressing urgent maintenance needs.
Land Acquisition for Development
Bridge Financing for Construction
Short-term financing to cover gaps between construction phases, helping developers complete projects before securing traditional financing.
These are just some of the lesser-known scenarios in which hard money loans may prove helpful—if not crucial. It goes without saying that a proper analysis of a property’s risks, costs, and profits is needed, but hard money loans can be a great way to get that needed injection of quick cash.
When should you consider a Hard Money Loan?
These loans can be the much needed Hail Mary when traditional financing is unavailable or impractical. If you have a slim credit file and/or non-traditional sources of income and you’re looking to make a quick purchase, rehab a property, purchase an unconventional property, a hard money loan may be just right for you.
What are the benefits of hard money loans?
What are the risks of hard money loans?
Give us a call at 361-334-7903 and let’s help you explore your best loan options.
We invite you to leverage our lending experience so that you can confidently create a legacy of real estate wealth for your most cherished loved ones.