Pros and Cons of Hard Money Loans

Hard money loans are alternative forms of acquiring money without the use of traditional bank lenders. A private money lender gives you the money that you need under his terms.

last updated Thursday, May 18, 2023
#Hard Money Loans #Loan Processing

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John Burson

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Hard money loans may have widespread applications, but all lenders follow similar execution methods. This type of alternative lending has also been a favorite for people with bad credit or anyone in urgent need of funding. Below are some pros and cons of using commercial hard money loans:

Pros of Hard Money Loans:

• Quick loan processing:

  Traditional loan providers may take weeks to process a loan and give you the required money. However, a hard money loan takes a few days and sometimes about 24 hours to mature. This can be a significant benefit to anyone in urgent need of cash.

• Easy application process:

  The application process for hard money loans is quicker than that of conventional lenders since the borrowers deal directly with a private or an individual lender. The lenders use their opinion to determine your eligibility for a loan, which is contrary to the banks and other lenders who operate the tedious underwriting process. They also rely heavily on the value of the property used as collateral rather than focusing on the borrower’s credit rating.

• Flexible repayment terms:

  The lender provides flexible repayment terms to the borrowers. For example, the lender may allow the borrower to pay the interest alone during the tough months to avoid overburdening them with large payments.

Cons of Hard Money Loans

• The rate of interest is high:

  This is one of the most significant disadvantages of hard money loans. The interest rates for the loans are far higher than the ones charged by conventional loans.

• Hard to find:

  The hard money lenders are hard to locate depending on your residence. Online hard money lenders are easier to find, but most have restrictions on the states they operate. The state regulations require hard money lenders to obtain a license that allows them to work only in the states where they do business.

• Low loan-to-value ratios:

  The loan-to-value ratio involves determining how much money a borrower will get. Most hard money lenders only provide a loan-to-value ratio of 60% or 70%, meaning the borrower has to get financing from other sources to fund their project.

 
 
 

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