What is a Hard Money Loan and How Do They Work
The world of real estate investors could be quite funny at times as there are all those terms thrown around all the time. Yet often people don’t fully grasp the concept of what they actually mean. That is also the case when it comes to a hard money loan. This is one of the most used terms, yet a lot of people need an explanation on the topic. Thus we will provide you with all of the needed information in the following article.
The Definition of Hard Money
As you know, people acquire loans based on their credit score. This is not the case when it comes to hard money lenders who actually give out loans based on the type of building or property the loan taker is willing to buy. The money which the person acquires is called “hard money”. The catch is that the interest rate percentage is almost two times higher than what you would pay a bank. While a mortgage would be the better option, many people don’t even have that offer on the table due to their credit score, which brings us to the topic of who needs hard money loans.
The People Who Acquire Hard Money
The usual audience of the service is in the face of house flippers and developers. They will take advantage of such deal because they would be able to borrow the full amount of the purchase price of the property, which is actually unheard of in any other type of deal. The money lenders, however, will not receive the full risk of the loan, as they generally tend to ask the loan takers to back it up with their own real estate assets.
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Many real estate investors have begun their careers as real estate agents. As they learned the business, they managed to pinpoint a few properties which were being sold on a price which is far less than the market one. What they have done is, they opted in for a hard money loan in order to buy the property and then managed to sell it with an insane profit which directly goes into their pockets. In such scenario, there would be no time to negotiate a mortgage deal as that requires going through quite a few different procedures. The banks usually operate quite slowly compared to hard money lenders, which makes the latter the best option to choose.
The more you use the services of such people, the easier a loan would be to acquire, and if you have a good eye on the property market, you could make quite a large profit on a monthly basis through the utilization of hard money loans.
Taking all of that into consideration we could easily sum up that hard money loans are extremely good for people that have a good understanding of the real estate market, however, do pose a higher risk when you compare them to mortgages as you will be putting your real current assets on the table.