Hard money loans are a unique financing option that is typically used by professional real estate investors. While experienced investors know the details of hard money loans, less experienced investors need to learn the subject so they can have the knowledge necessary to make the best decision for their specific project. Before applying, a potential borrower should know the main benefits of using a hard money loan.
When you’re a rookie investor, hard money loans allow you to purchase property with very little money of your own. Once you’ve established yourself as an experienced investor, you may be able to secure other forms of financing such as a low-interest line of credit from a bank instead of or in conjunction with a hard money loan.
Hard money loans are quicker to obtain when compared to other loans— this convenience helps you to close property deals in an efficient manner. When a deal is good, you have to act fast. So, while most investors do not have the capital to pay cash out-of-pocket, hard money loans give you the ability to close deals quickly in lieu of a cash payment. Closing the deal on the property is an important first step to a successful project.
Traditional mortgages require a minimum 5 percent down payment on the purchase price, while banks prefer investors to put down 20 percent of the purchase price, which often leads to better terms on the loan. If an investor neglects to put down 20 percent, they often have to purchase mortgage insurance, which increases the monthly mortgage payment. On the other hand, with a hard money loan, the lender may be willing to lend you 100 percent of the purchase price— without a down payment. You would only be responsible for paying the origination fee and the monthly interest until the loan is paid off in full.
Many real estate investors prefer hard money lending, and the connections which grow between real estate investors via hard money lenders is essential for growing businesses. In addition to the direct connections you can establish, hard money lenders typically have close connections with brokerages which can help you with your investment goals or help you find your next big deal.
One of the largest obstacles real estate investors face today is getting a loan from traditional sources like banks or nationalized firms in order to buy a prospective property. Traditional sources need to verify the borrower’s income, decide the loan amount based on the appraised value of the property, and then go through a number of lengthy procedures to grant the loan. Due to hard money’s asset-based nature, getting approval for a loan is more often a positive experience than when dealing with traditional loans. Bereft of stringent credit checks and multiple arduous steps between you and your loan approval, your loan officer will mostly be assessing the value of your intended property before deciding yes on the loan.
RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing as well as long-term rental financing for real estate investors. RCN Capital also has flexible and competitive loan options available. Connect with us todayto discuss your next fix & flip investment.