Hard Money Loans are loans cashed by private money lenders supported by real estate or other tangible assets.
The interest rates of hard money lenders Los Angeles are more extensive than regular mortgages. Additionally, they have shorter terms.
These loans are not taken from regular money lenders who follow the traditional lending process. These lenders are private, and they use assets offered as collateral. Having collateral reduces the chances of risks being taken by both the lender and the borrower.
Hard money loans are also known as short-term bridge loans. This is because it bridges the big gap between financing and investment purchase.
Hard money loans give access to quick money and a large sum of it. Therefore, people opt for it when they need a large sum of money on short notice or for emergency purposes. These loans determine the sale and purchase of a piece of land. Some of these loans also work as a pathway for traditional loans.
Hard money loans are prevalent in the real estate business. Some investors indulge in the process of flipping. This means that getting money for repairing and selling them for a more considerable sum is only possible because of a hard money loan. In the absence of traditional financing, hard money loans are used for renting or for commercial purposes.
Workings Of A Hard Money Loan
The period for hard money loans is usually up to three years. Even if there are chances for extension, one wouldn’t want to extend their period to pay off these loans as the interest rates are too high. In the year 2020, the average interest rate for hard money loans was 11.25%.
Should You Go For A Hard Money Loan?
Hard money loans are more flexible than regular money loans. Hard money lenders allow amendments like adjustments in repayment schedules which traditional money lenders never will.
The collateral is the most crucial factor in a hard money loan. This is because the collateral helps to secure the loan. As the land acts as a guarantee, getting a loan approved for property investment is simpler.
Hard money loans have their upsides, but at the same time, they have their limitations. A principal drawback of borrowing from hard money lenders is the additional costs you’ll have to bear. The interest rates, as already discussed earlier, are perpetually high. This might require you to pay closing charges or other charges to fund yourself.
Borrowing a large sum of money during a short period can be risky. If you cannot pay the money within the stipulated period, you might have to pay even higher interests or face a squeeze on any more incoming cash.
The evaluation of your collateral by the hard money lenders drains your resources. For example, your lender might be expecting a 30% down payment when you had pinned that number in your head to a 20%. This will cause you a shortage of labor, capital, and material.
The approval for hard money loans is quick and is an easy process. You need to ensure that the asset you wish to submit as collateral can give you the loan of the sum that you are expecting.
If you have a short-term loan in mind, then you should consider hard money loans. Fix, and flip is a great activity for hard money borrowers. They take on properties and renovate them. This increases the value of their property, and they sell it immediately. This way, they can pay their short-term hard money loans.