Hard money loans have been given a bad reputation and not a lot of people know about them, which is mainly due to the misconceptions surrounding them. The hard money lending industry’s reputation has been tarnished by a few rotten apples who offered risky loans to borrowers while keeping real estate as collateral with the intention of foreclosing the properties.
These types of money lenders aren’t around in the market anymore, but there is still stigma attached to hard money lenders. If you have considered hard money loans or are considering one, then we’re going to clear the air here so that you know the basics of a hard money loan.
A hard money loan is a short-term loan that is secured by real estate and is funded by private investors, instead of conventional lenders like credit unions or banks. The standard term is for about 12 months, but you can extend the terms to around 2 to 5 years. You pay back the loan in monthly installments with interest or some with interest principal and a balloon payment when the term finishes.
The value of the property will determine the amount hard money lenders will be comfortable loaning to the borrowers. The property can be one that the borrower is looking to acquire, or it could be one that the borrower owns and wants to use as collateral. Hard money lenders aren’t concerned about the borrower’s credit as they focus on the property’s value. That means borrowers who fail to get financing through conventional means due to a short sale or a foreclosure can acquire a hard money loan if the property they are using as collateral has enough equity.
Even if the banks and financial institutions say “NO” to finance you, there are always hard money lenders that are willing to say “YES”.
You can get a hard money loan for any type of property, even if it is industrial, land, commercial, multi-family residential, or single-family residential. Some hard money lenders tend to specialize in specific property types like residential properties and may not offer loans for land or commercial properties, as they don’t have enough experience in that area. A lot of hard money lenders have their own specific niche of loan, which is why you must always ask what types of loans they’re willing to offer you upfront.
Most hard money lenders don’t offer loans on owner-occupied residential properties because of the extra rules and regulations. However, you will find some that are willing to handle all the paperwork that is involved in such loans.
You shouldn’t be relying on hard money loans every time you’re looking to invest in real estate, as they’re not appropriate for all deals. So, if you’re purchasing a residence with good credit, no issues on short sale or foreclosure, and good income history, getting conventional financing through a bank is the best way forward. You should only rely on hard money loans when banks and financial institutions have refused to provide you with the loan. You can ideally use hard money loans for the following situations:
If you’re interested to learn more about hard money loans in California, get in touch with PB Financial Group today.