Many real estate investors and homeowners have heard the term hard money without having a very clear definition of what it entails or what the benefits of working with a hard money lender could be for them. Hard money loans can be, depending on your specific case, a lifesaving investment enabler or a very bad idea.
Who Benefits Most From Hard Money Loans?
There are numerous types of individuals who can benefit from the offer of a hard money lender, but the number one beneficiaries are the rehabilitated home sellers.
If you are an investor who flips homes – buying undesirable properties at low cost and then renovating and rehabilitating them for re-entrance on the market – you have a great deal to gain from hard money loans.
Hard money loans are ideal for this type of situations for a number of reasons, including:
- They are short-term loans, usually not lasting longer than 1-2 years.
- They are very quick to qualify for, giving you access to cash when you need it.
- They use the property as collateral, with less emphasis on your credit score and personal holdings, income, etc.
In return, the interest rate is usually higher than that of a conventional loan – however, an individual who wants to sell a property within months of purchasing it does not need to worry about the effects of a higher interest rate.
Who Should Avoid Hard Money Loans?
Hard money loans are meant for real estate investors and professionals. Homeowners with poor credit who are looking for a way to get a loan made should not be even considering them. There are other options available that are better suited for the needs of homeowners.
While some hard money lenders may accept to work with a homeowner, it is highly unlikely that the homeowner in question will be able to keep up with the payments for an extended period of time. Putting your home on the line in order to make ends meet is not always a solution, and an honest hard money lender will make sure you see that.