Four Situations to Use Hard Money Loan
Hard money loans are typically not the first place investors look for when making a large purchase, but understanding exactly what one is and how it can be used is a great lesson for everybody. A hard money loan is a financial advance given by a private group financially invested in the project. It can also come from a group of private investors who have already combined their financial assets and work with a loan broker to issue loans to qualified people. Who are those qualified people and why do they choose this method of financing? Here’s a quick insight into situations where it is great to use a hard money lender.
- Your Credit Isn’t Where You Want It To Be. You made a few bad financial decisions, had an investment opportunity go downhill or had a personal emergency occur. This situation can happen to anyone, and it’s no reason for you not to be able to find financial help. Traditional loan companies require a credit check with excellent credit history in order to be eligible for a loan. They need to assess your ability to pay off prior debt because it tends to predict your ability to pay off future debt. Hard money lenders require no minimum FICO credit score to apply.
- You’re in Competition. When the property market is hot, the time to close the deal is NOW. Property investors are often in competition with other buyers, so the quicker the closing, the better. There’s no such thing as a quick conventional loan process. It can take days or weeks to settle things out with the appropriate financial resources. You may have enough money for a down payment and closing costs but can’t finance the whole project independently. This is when a hard money loan will save you time. You can secure the cash you need in a matter of days, even hours.
- You Need Additional Financing. You’ve found your property, used traditional lending methods, and invested all the money you have on hand into it. However, you still need more money for unforeseen repairs or property improvements. You’re not going to be able to get the cash flow you need from your traditional loan because you are only typically given the amount you need to purchase. A hard money loan can provide the additional financing. Property flippers have taken advantage of and benefited from this means of money for years.
- You’re Building Something New. You’ve found the land to build a house or the industrial space to expand a business. You have the capital ready to use on the project but are not sure how much financing is necessary. There is a certain amount of hidden value in starting a new project, and the results aren’t often seen until the property is fixed. A hard money loan will provide the money even though the investment may seem risky.