The Pros of Hard Money Loans
Hard money loans are often associated as the last resort for borrowers, developers or investors. Many people assume these loans are only for developers with poor credit, but in reality, these types of loans can help expand real estate portfolios and allow developers to immediately take advantage of excellent investments with fast closings terms.
There are several situations where developers or investors will use a direct lender or a bank lender, even if they have superb credit and financial standing.
1. Banks often take several months to close on an investment property. A hard money lender can close a property quickly, often within a matter of 10 to 14 days.
2. If a developer is presented with more real estate opportunities then they have in available cash.
3. Often times borrowers prefer to focus their energy hunting down new real estate investments than raising funds from small investors.
4. Securing a conventional loan on a development property can be difficult, while hard money lenders are more apt to waive fine print obligations and underwriting requirements.
5. Many times developers have existing lines of credit with banks, but the new property loan would exceed the existing credit line.
The benefits of using a hard money lender is that they offer faster underwriting, quicker response times and they are willing to take on high-risk loans. Most banks will only loan on secure financial investments. Hard money lenders focus on offering real estate development loans, apartment building loans, commercial building loans, commercial construction loans, commercial property loans and more.
Additionally, hard money loans are geared towards developers and investors that are interested in commercial or non-owner-occupied properties. Commercial properties include a wide variety of zoning types, including mixed-use, industrial, hospitality, office and retail. Hard money lenders are generally willing to lend on undeveloped or raw land that is zoned for commercial use.
If investors are purchasing a problem property, such as a distressed home, hard money lenders are more willing to include additional funding to cover any necessary construction or remodel costs. This helps investors keep cash in their own pockets until properties produce sufficient profitable income, which allows them to either flip it for a profit or refinance with a conventional loan.
When a real estate investor can act quickly, it can generally mean the difference between getting the deal and not getting the deal. Since hard money loans can be funded within a week and traditional loans take between 30 to 85 days, most sellers will take the shorter financing period.