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Hard Money Loans – The Pros and Cons

Hard Money Loans - The Pros and Cons

You may have heard the terms hard money and private money used when talking about real estate investing, but what are these loans? Learn about hard money loans before you turn to them as an investment option. Find out what to expect with this guide to hard money loans!

A Quick History of Hard Money

In its original form, hard money (so-called because it was made of hard gold or silver) was loaned at interest rates to those individuals with assets but no credit who needed short-term financing. During the Great Depression in the 1930s, President Roosevelt instituted the first draft of what would eventually become the FDIC.

How Do I Qualify For A Hard Loan?

The best way to qualify for a hard loan is to have adequate down payment, at least 20% of the purchase price. They are only available on investment property and not on single-family residences. There is also an application fee which could be as much as 3% of the purchase price.

The Benefits of a Hard Loan

A hard money loan is usually a short-term solution. If you can repay your loan on time, the interest rates might not be as high. You have the option of refinancing with a bank at a later date to get lower interest rates.

If you need capital quickly, this option may make sense for you even if it has higher interest rates because of how fast the money is available.

Tips on Applying for a Hard Loan

Before you apply for a hard loan, consider the pros and cons of these types of loans. A hard money loan has different rates than a traditional bank loan as it is riskier for the lender. If you have equity in your home or other property that you are selling on contract, this may be an option to pursue instead.

Should You Get A Soft Loan Instead?

If you’re looking to start a business, there are two types of loans you may be considering. Hard money loans have many benefits, but can be difficult to qualify for. Soft loans are more inclusive but require more security in the form of collateral. If your company has already been operating for some time or can offer large amounts of collateral then hard money loans might be a good choice for you!

Borrowing Against Your Home Equity (equity loan)

A home equity loan is a loan that you take out against your home’s equity. Borrowing against the value of your property lets you access some of the equity you’ve built up in your home without having to sell it. You are also likely to get a better interest rate than a typical personal loan since lenders will consider you less of credit risk since they have security in the form of your house.

Some FAQs About Hard Money Loans

Can I get a hard money loan with bad credit? No, for most hard money lenders, you need to have good credit. However, if you know somebody who is willing to cosign your loan with a stellar credit rating, then you can apply. Will my property be at risk? A lot of people ask this question since they aren’t sure what hard money loans are all about. When you apply for a hard money loan, the lender will provide enough funds to cover the down payment on a property.