Hard money loans are great for first time investors as well as seasoned experts in the real estate industry. Hard money loans are offered by investment groups who prefer to use their funds to invest in short-term opportunities. The types of projects hard money loans are good for are: properties that have equity, borrowers who need the money quickly, and borrowers that do not qualify for a conventional loan. Hard money lenders look in to the ability of the borrower to pay back the loan, rather than looking at the credit score. This is done by looking to the value of the property as collateral. Hard money lenders provide loans in less time, with less paperwork than traditional sources of funding. In exchange for these transactions, the interest rates are higher due to the risk involved.
Hard money loans are perfect for home buyers caught in the gap between buying a new home and selling their existing ones or bridge loans, to fix and flip investors who profit from buying below-market price homes, adding improvements to them, and selling them as soon as possible. The commonality in all transactions is that the loan is based on the value of the properties, not the credit scores of the borrowers. Fix and flip investors typically buy properties with cash, and sell it often before the one year term which is why they prefer to do business with quick hard money lenders.
The fees vary depending on the lender but they typically involve appraisal fees, title insurance, and property insurance. Monthly interest-only payments are spread over the life of the loan, and a balloon payment will be paid at the end of the loan’s term, or the sale of the property, whichever comes first.