How Do Hard Money Loans Work for Real Estate Investments?

When an investor needs capital quickly, hard money loans help them acquire funds quickly for their next strategic move in the market. Depending on your portfolio goals, there are many options available for investors to acquire fast funding with a hard money loan. Continue reading to learn how hard money loans work for real estate investments and how you can leverage one in your portfolio.

What is a Hard Money Loan?

A hard money loan is a type of secured loan that is often used in real estate to financially leverage investors when funding is needed fast. When applying for a hard money loan, it’s important to research the institution’s rates, terms, and other fees in order to determine if the loan is right for you.

How are Hard Money Loans Different from Traditional Loans?

Unlike traditional loans, hard money loans carry higher interest rates and usually require a larger down payment. Although this may be the case, coming from a strategic standpoint, hard money loans offer a generous amount of benefits when compared to traditional loans.

Benefits of Hard Money Loans

They Offer Convenience

Hard money loans are convenient for an investor who considers federal regulations to be a drag on their overall strategy. Institutions that offer hard money loans are not associated with the Federal Reserve, meaning they do not have to abide by the federal regulations of the Freddie Mac or Fannie Mae. Federal regulations can distract you from your original investing strategy, potentially causing weeks of delay. Hard money lenders create their own rules, which gives investors added convenience.

Flexible Terms

Since hard money lenders create their own rules and regulations, they often offer more flexible terms than traditional loans. You’ll have room for negotiation when applying for a hard money loan versus a traditional loan, like having the ability to tailor your repayment schedule to your specific needs and even reduce the overall fees you pay. With more flexible terms, you can execute your moves quicker in the real estate market.

Fast Funding

Hard money loans are unique for their ability to offer fast funding, a quality that many investors prefer them for. Closing on a property can be a timely process, but when you use a hard money loan you can speed up this process. This stands out to sellers when choosing a buyer as hard money loans allows them to get their hands on capital quicker. An investor can acquire a hard money loan in as little as a few days to a week, meanwhile, a traditional loan can take up to a month for approval.

Short Term Repayment

If you’re more of a short-term investor, hard money loans are the perfect option for you. The short repayment terms of hard money loans allow you to repay your full loan amount quicker than terms offered by traditional loans. Unlike traditional loans, hard money loans have little to no fees if you decide to pay it back early. If you’re a fix and flip investor, you don’t want to be locked into a traditional loan of 30 years. Hard money loans are impeccable for investors who want to pay off their loans quickly and move onto the next project.

Less Focus on Your Credit Score

Investors prefer hard money loans over traditional loans because approval depends less on your credit score and more on your overall experience in real estate as well as the value of the property you wish to purchase. Hard money lenders are more lenient when it comes to an investor’s credit history than traditional lenders since hard money loans are backed by collateral instead of an investor’s finances. If you end up defaulting on your loan, the hard money lender will acquire the collateral, which in most cases is the investor’s property.

RCN Capital

RCN Capital offers short-term and long-term financing options for real estate investors. Whether you are looking to fix & flip properties or hold properties for rental income, RCN has flexible options that are suited to your needs.Connect with us todayto discuss your next real estate investment.