What Is a Hard Money Loan in Real Estate & Should You Use It?

When diving into the world of real estate investing, one of the things you will definitely need to learn how to do is get quick access to capital. When you need money to close a deal, you will surely want to get it as soon as possible, because real estate is a competitive market, and if you don’t close quickly, someone else will. Learn more about investing in real estate, so as to get a better idea about how to do it all.

Now, clearly, to get access to capital, you will most likely have to apply for a loan. But, you know that getting a traditional one can often take even months, which is not exactly the definition of quick. So, you may be looking for a different solution, for something that will help you do things more successfully, that is, something that will help you not let that deal you have in mind slip away.

Well, hard money loans have become quite a popular choice in the world of real estate. And, perhaps they could be the key to gaining that quick access to capital that you are looking for. There is no doubt, thus, that you should learn about this particular solution, and understand what it is, how it works, what it brings to the table, as well as whether you should use it to your advantage.

If you are ready to get the answers to those important questions, then you should undeniably take your time to read on and find out what you need to know. Below I will provide you with the answers and thus bring this idea of hard money loans a bit closer to you, hoping that you’ll understand it better, and then ultimately decide if you want to use it to your advantage or not. So, here we go.

What Is a Hard Money Loan in Real Estate?

The very first thing we have to do here is ensure that you actually understand this concept. The good thing is that it is definitely not difficult to understand. Let us, therefore, cut right to the chase and make things completely clear.

In short, you have to know what this concept entails. And, well, a hard money loan is a type of an asset-backed, short-term loan that investors often use when they need access to quick capital. They use it for several reasons, the first of them being the fact that the entire process of applying and getting approved is rather quick, which allows them to get the money they need in a matter of days, and thus complete the transaction they had in mind and basically get the property thy are after.

Furthermore, it is a popular option among investors also because their approval doesn’t depend on their credit score. Since the loan is asset backed, it means that it is actually secured by the property that you are buying, which eliminates the need for extensive credit checks. And which opens up the doors to real estate investing to people who are self-employed, who have changed jobs, who have a poor credit score, or no credit history at all. With this option, thus, it is easy for you to dip your toe into the pool of real estate investing.

Of course, as you may have imagined it, this is not the type of loan that you can get from your bank. While they deal with traditional processes that can take too long to be completed, there are private lenders out there who can provide you with the hard money loan option. So, if you want to use this option to your advantage, you should find a good private lender to be your partner in the process.

Here is another crucial thing to know. Since the private lenders don’t perform credit checks, and since the qualifying criteria is generally lenient, it means that they are assuming greater risks, while the borrowers are getting greater flexibility. This is why the interest rates for these loans can be slightly higher than those you can expect to get on a traditional mortgage. But, given the flexibility and the speed, those are often worth it.

Read some more on hard money loans: https://www.experian.com/blogs/ask-experian/how-do-hard-money-loans-work/

Should You Use It?

Onto the next question. Should you use this option to your advantage, or should you stick to the traditional solutions? Well, this is a question that only you can answer for yourself, meaning that the decision is ultimately yours to make.

What you should keep in mind, though, is that this can be a great option for you to gain access to capital quickly, which puts you at a great competitive advantage. It allows you to grab the deal you are after instead of missing out on it. And, it does that regardless of your credit check. So, it may be worth giving a go.