hard-money-loanA hard money loan is an ideal – although often misunderstood– solution to a very common issue that real estate investors experience. It is often the loan of choice for developers who do not want to spend the time or energy necessary to secure a conventional mortgage loan or who need a temporary influx of cash with which to develop their property quickly.

The United State’s government, however, provides FHA-backed loans that are designed to help Americans with less than perfect credit own their own homes. It does this by securing and insuring the loan through the FHA loan structure. It is easy to see that, while these two types of loans may seem similar, they serve two very different needs.

A Hard Money Loan Is Not Just for People without Perfect Credit

The fact that your credit rating is not heavily taken into consideration for this type of loan does not mean that it is ideal for a long-term engagement, like buying yourself a home to live in. It is ideal for getting the cash necessary on-hand in order to develop a property and sell it within a short time frame.

That short time frame is key, since the government-backed FHA loan is anything but speedy. Anyone who has worked with the state for just about any reason should be aware of this, and, if you are holding onto a property that is costing you money every day that you own it, you can quickly sink into the red while waiting for a conventional loan.

hard-money-loanFrom a hard money lender, however, it is possible to get the cash quickly. With the cash ready, you can get contractors to renovate the home or commercial property and put it on the market as soon as it is ready. Being able to complete all of this within such a short time frame justifies the higher interest rate that hard money loans tend to command. If the only other option is to wait for a conventional loan to go through, you are almost certainly better off with a hard money loan.