Purchasing real estate usually requires taking a loan of some type. Some investors turn to hard money loans when they need cash for a transaction. But before you do, it pays to know exactly what you are getting into, as there are often better choices in loans.
A hard money loan is one in which you, as the investor, receive money directly from a lender. The contract you agree to will dictate the loan’s terms. This type of loan puts money in your account which you have to pay interest on every month. The interest payments end when the loan has been paid back completely. In most cases, you will have to pay an upfront charge to get this type of loan. The property you are using the hard money loan to purchase acts as collateral for it.
Hard money loans are most often used by real estate investors. This is because most banks aren’t willing to extend this type of loan. Property flips and rehab projects are most often funded using this option. If you are purchasing a property to earn income off of, a hard money loan can help you acquire it. But as soon as the property you purchase has been stabilized you’ll have to transition to a mortgage in order to pay for the rest of the project.
While there are downsides to using hard money loans, there are upsides as well. One of them is that this is a way to acquire money quickly, which is crucial for real estate transactions. Your lender will likely only take the value of the property into consideration when deciding whether or not to approve you for the funding. However, if you are approved you’ll often receive the money in a matter of weeks, or even days. Other types of loans take much longer to acquire.
You can also borrow a higher amount with a hard money loan than you would be able to with a mortgage. In many cases, you can get the full amount that you need in order to purchase the property you are interested in investing in.
For more information on hard money loans, please contact BT84 Commercial Capital & Business Solutions.