If, for individuals looking for financing to buy their home dream, a hard money loan is not a solution, things are completely different when it comes to investors and commercial real estate professionals interested in flipping a home for profit.
If you belong to the latter category, your entire financial outset is, from the start, significantly different than that of someone who is planning to live in the place for the next 30 years.
This is why certain financial decisions, like the one mentioned above, make a lot of sense for real estate investors, but would never be considered by a homeowner. Here are some reasons why:
Top Five Reasons To Use Hard Money
- These Loans Are Project-Based. Both you and your lender collateralize the loan on the property in question. That means that your other properties, projects and credit score are not as fundamental to the loan’s scheme, which helps out developers immensely.
- They Are Only Granted on Short-Term. Evidently, if you are planning on fixing up a home and then selling it off to a happy family, you want to take out a loan that reflects your investment. A 30-year mortgage is not ideal for a person who wants to sell a home as quickly as possible, even if the interest rate is better.
- They Are Backed By The Value Of The Property. This is the most important definition of what makes this kind of loan special. Your individual credit worthiness is not as important, and, as a result, you can renovate the property using its own value as the collateral.
- They Can Be Taken Out Quickly. When rehabilitating a home, time is often of the essence. Making sure that you can secure your loan and can begin work as quickly as possible is important, and this type of loans is often the fastest you can procure.
- They Can Be Taken Out With Mediocre Credit. Granted, it is true that having a very poor credit score will make it difficult to negotiate the terms you want. A score that has taken a few hits, however, will often still qualify for a hard money loan where FHA and conventional loaning will not.