Before the Great Recession, banks were handing out home loans even in the face of massively overvalued housing prices that didn’t seem to be justified. Ironically, in the aftermath of the greatest economic downturn in the last 80 years, with steadily rising prices and plenty of opportunities for savvy investors to turn a profit on real estate, banks have tightened up on lending, giving money only to those with near perfect credit scores.
So what’s the best way to get money for a real estate investment project if you have less than perfect credit? Hard money lenders like NLDS Corp. offer loans for real estate investments, despite bad credit, if the investment looks sound.
When Should You Seek A Hard Money Loan
Hard money loans work best for those who need short term loans for real estate investment projects. One of the most common uses for hard money loans are fix and flip projects, where borrowers already have 30% or more of the money necessary to purchase and rehabilitate a property, but need financing to cover the remainder of the costs. Since fix and flip projects ideally last only several months to a year short term hard money loans are the perfect loans for these projects.
Another common use for hard money loans are other short term real estate projects such as land loans (for purchasing land you intend to develop and sell) and construction loans (to cover the costs of developing land).
The point is, hard money loans involve a large balloon payment at the end of the loan term, so you need to be prepared to complete the project and sell the property for a profit within a relatively short period of time. This requires meticulous planning from the very beginning.
Hard money loans are also good for people who have found a great opportunity to turn a profit on a real estate investment, but don’t have great credit. If you can present a good plan and timeline for developing a property and selling it at a substantial profit, you will be able to get a hard money loan even if you have mediocre credit.
Yes, the interest rate will be a little higher, and you will only be able to get about 70% financing, but those terms reflect the increased risk that hard money lenders are taking on.