What Is a Hard Money Loan?

A hard money loan is a non-conforming credit that enables you to invest in properties. This cash mortgage cannot be obtained from normal lenders. For instance, you can’t get this funding from Chase Bank, Wells Fargo, or any of the local banks or credit unions around you.

You may mistake the word ‘Hard’ that is attached to the loan; the truth is, there is nothing difficult about this loan; instead, the asset that is required to secure the loan is the ‘hard’ part.How does a hard money loan work?

You get to secure hard cash lending by the property you tie them to rather than your credit or financial profile. The allowance depends on the value of the property, and it usually comes with a short repayment period, generally less than one year. This is why it is often sought by people who want to buy homes with the intent of fixing and selling them quickly later.

Some of these fundings are created as interest-only loans, followed by a large balloon payment, making them riskier than other financing options.

Types of Hard Money Loans

• Bridge Loans

This type of lending is a short-term allowance with six to twenty-four months’ terms ending in a balloon payment. The deal can close within 24 hours or may take up to one to two weeks. Bridge mortgages can be used for purposes like purchasing a fixed asset, acquiring a home, refinancing investment, etc. Read more on how you can refinance your investment property.

Visit

https://www.experian.co.uk/consumer/loans/guides/bridging-loans.html to learn more about bridge loans.

• Cross-collateral blanket lending

Also known as multi-property lending, this lending involves one allowance to be secured by two or more properties.

• Commercial property hard money lending

This is used to secure commercial properties like condotels, gas Stations, hospitality/hotels/motels, land, medical, office Buildings, mixed-use, office buildings, retail Buildings, and more.

• Fix and flip lending.

These are exactly as their names suggest. Real estate investors acquire fixer-uppers funded by a personal cash advance to acquire, rehab, or renovate a property. 

Hard money mortgage vs. traditional mortgages

Hard cash mortgages differ from traditional mortgages in so many aspects, including

The application and securing processes of personal cash advances are much faster than traditional mortgages.  The repayment period is also shorter than that of traditional ones, which can reach up to 15 to 34 years. It can be as little as six to eighteen months.

Interest on it is usually much higher than that of traditional mortgages. The value of the deal is tailored to the underwriting, not the borrower’s credit score. The lenders usually ask for a down payment that is higher in percentage than a traditional mortgage.

Hard money loans vs. soft money loans

Hard money loans also differ from soft money loans in many ways, including

It’s obtained through physical assets such as property and their value in the form of equity. This means if you fail to repay the loan, the result will be forfeiting the asset that was pledged.

On the other hand, soft cash loans depend on the borrower’s credit. Considerations like repayment ability and credit score are heavily weighted to determine whether a person is eligible for lending or not. Additionally, in a soft cash loan, the borrower is responsible for the debt in the situation of default until the debt is fully paid.

Click here to learn more about soft money loans.

Who Qualifies for a Hard Money Loan

As mentioned, a personal cash advance solely depends on the property value you want to obtain. Some of the criteria for obtaining a personal cash advance

• Credit criteria

Although credit score is not the main factor that hard cash lenders consider, it’s among the important parts of the application process. Normally, hard money loans can be obtained by persons with a 550 credit score or more. However, some lenders might be nice to provide a loan to someone with a credit score of 500 or slightly lower.

• Income Considerations

The credit doesn’t depend on your income, but the lender may still ask you to prove that you have a way of repaying it. They will review your bank statements, tax returns, or pay stubs for this.

• Employment/Asset Criteria

Aside from income, the lenders will also consider your employment status and assets to assess your ability to repay it.

Conclusion

A hard money mortgage is secured by real property. It’s a short-term lending which is why it’s often referred to as a “last resort” loan. It’s of many types, including bridge, flip and fix, and many more. The criteria for quality for the loan include a credit score of not less than 500 and a stable source of income.