Interested in a Hard Money Loan? What to Know Before Applying
Posted on: 4 March 2021
Traditional loans, like mortgages, are available through banks, credit unions, and other lending institutions. Unfortunately, this type of lending option often requires both borrowers and the property they want to buy to meet rigid requirements for the loan to be approved. These requirements and the lengthy timeframe needed to work through the traditional loan process can be an obstacle for some prospective borrowers.
Unlike traditional lending sources, hard money lenders can reduce loan requirements and the time between application and final approval. Mortgages and other types of traditional loan products are typically matched to the borrower's ability to repay the loan amount within a structured time frame.
Collateral is the lender's focus
Hard money loans take a different approach. Instead of focusing on income to debt ratios, employment histories, and FICO scores, hard money lenders focus on the value of the collateral the borrower offers as security for the loan amount.
If the value of the collateral offered is sufficient in value to cover the loan amount, prospective borrowers may be able to have their loan approved and issued within a matter of days or weeks, instead of the 30–60 day time frame of a traditional mortgage loan process.
Terms differ from more traditional lending options
Traditional mortgages for the purpose of buying real estate usually extend from 10–30 years or longer. In a hard money loan scenario, borrowers are typically expected to repay the loan within a much shorter term, usually just 1–5 years. In addition to a short repayment term, hard money borrowers should expect to pay significantly higher interest rates over the life of the loan.
Flexibility is an important benefit
Asset-based hard money loans are sourced from investors and private individuals. Unlike large banks and lenders who may require a lengthy, uniform lending process for all applicants, hard money lenders are free to consider each loan on its own merits. Because of this, borrowers with credit issues in their past may find it easier to be approved for a hard money loan, as long as they can put forth the amount of collateral required.
Hard money loans, like all types of lending options, should be researched carefully before making an application to ensure that all terms and conditions are acceptable. To get answers to questions about hard money lending, or to make an application, prospective borrowers can make an appointment to discuss their specific situation with a reputable hard money lender.
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