A hard money loan is often the solution chosen by real estate investors who need a quick cash flow. This type of loan is provided by private lenders and is slightly different from the loans one would be able to get from banks or other lenders. As opposed to traditional loans, backed by the borrower’s credit worthiness, this lending option is endorsed by the value of the asset.
Investors in real estate turn to the private hard money market because it presents many advantages to them.
- First of all, the process is not only simpler, but also faster. A private lender needs just an application from the borrower and an appraisal of the property.
- Second of all, a hard money loan lies within reasonable terms; market interest rates are charged, plus an origination fee.
- Third of all, private lenders are much more flexible than banks and can close deals that traditional lenders might not.
Hard Money Loan Approval Criteria
However, private money lenders need guarantees, as well. They want to see that the clients are confident in the investment and are ready to commit their own capital to the deal. Usually, they only grant loans of around 65 percent of the total acquisition value. If the investment has really great prospects, then the lenders might even provide more of the total amount.
As mentioned before, private money lenders are not very much interested in the borrower’s credit score. Nevertheless, they will closely analyze the whole financial situation and check for cases of foreclosures, bankruptcies, collections and charge offs. They need to make sure that the client is a good risk before accepting the application.
Real estate investors that are in urgent need for money will find private lenders to be the best solution, as the loan can be approved within two weeks, sometimes even sooner than that.
The long process an application goes thorough in a bank is considerably reduced in this case. A hard money loan needs to be approved only by one person, the individual investor or the person they assign for that, without going through any repeated evaluations, committees and head offices.