Purchasing real estate often requires you to take a loan in order to do so. But there are a few different types you could get. One of them is hard money loans, though these do come with their own advantages and disadvantages. A hard money loan is a loan you get in exchange for the property you are purchasing. This is so the lender can seize the property from you if you can’t pay the loan back. The lender for this type of loan is always a group of investors or an individual working as a private investor.
The pros of hard money loans include the fact that you can obtain one quickly. In many cases, you’ll have the money you need within days of your approval. And while it’s not unusual to have to wait a few weeks for the money, this a quicker way to get financing than taking out a mortgage would. And in most cases, hard money lenders will give you the entire amount you need in one payment.
When you successfully pay off a hard money loan, the lender may be more inclined to give you another one in the future. The second time around, their terms will often be more favorable for you. This is a great tool for new real estate investors to build their business up with. After a few successful hard money loans, you may find it easier to secure a bank loan instead.
This brings up one con of using a hard money loan. While you can get them a lot quicker than a bank loan, you will likely pay significantly more in interest. The typical interest rate on hard money loans is generally between 10% and 20%. And interest isn’t the only fee you’ll pay on this type of loan. The lender will expect you to pay an origination fee, which is usually a large percentage of the total amount you are borrowing.
Aside from these two cons, another is that paying off a hard money loan is something you may have no more than one year to do.
For more information on hard money loans, please contact Fortis Funding.