If you’re looking to purchase your first home, invest in real estate, or refinance your current property, you may have heard of hard money loans. These loans are provided by private lenders like Benworth and are typically used for short-term financing needs. So what are the benefits to hard money loans over traditional bank financing, and what do you need to be aware of? Keep reading to find out…
Quick Funding When You Need It
One of the primary benefits of hard money loans is that they offer quick funding when you need it. Traditional bank loans can take weeks or even months to be approved and funded, which can be a major drawback if you need funds quickly. Hard money lenders like Benworth can typically approve and fund loans in a matter of 24 hours, making them a popular choice for real estate investors who need to move quickly on a property purchase or need funds to complete a renovation.
Flexible Underwriting Criteria
Another advantage of hard money loans is that they often have more flexible underwriting criteria than traditional loans. Traditional lenders typically require borrowers to have strong credit scores, steady income, and a history of financial stability. Hard money lenders, on the other hand, are more focused on the value of the collateral (such as a property) than the borrower’s creditworthiness. This means that borrowers with lower credit scores or who have had financial difficulties in the past may still be able to qualify for a hard money loan.
Because hard money loans are typically based on the value of the collateral, borrowers may be able to secure a loan even if they have had financial difficulties. Lenders may also be willing to provide larger loans than traditional lenders.
Easier to Qualify for in Times with Higher Traditional Interest Rates
When traditional interest rates are high, hard money loans can be an easier option for borrowers to qualify for. This again ties back to the fact that hard money lenders are primarily concerned with the value of the collateral rather than the borrower’s creditworthiness or current income, meaning lower credit scores of debt-to-income ratio turndowns are not an issue. As a result, borrowers who may not qualify for a traditional loan due to high interest rates or other factors may still be able to obtain a hard money loan.
Considerations and Risks
While hard money loans offer many potential benefits, there are also some considerations and risks to keep in mind. For one, hard money loans typically come with higher interest rates and fees than traditional loans. However, in times with high interest rates all around, hard money loans typically stay on par with traditional financing, meaning you can get a loan with a similar interest rate faster, with less hassle, and if your debt-to-income ratio has changed.
Additionally, because hard money loans are typically used for short-term financing needs. It’s important to note that hard money loans are intended to allow the borrower to close quickly and easily with the understanding they’ll likely need to refinance the loan in a year or two. This can however be beneficial to those who currently don’t qualify for traditional financing by allowing them to secure their real estate now and then refinance in a better rate environment.
Hard money loans can be a useful financing tool for real estate investors, homeowners, and small business owners who need quick funding and more flexible underwriting criteria. If you want to secure real estate today, fill out an application and we can get started on helping you do just that!