A hard money loan refers to an agreement in which you borrow funds using your property as collateral. Hard money lenders are usually private individuals or companies instead of traditional lenders like banks. That’s because while banks are more interested in your credit profile and ability to service the loan, hard money lenders are more concerned about the value of your property.

The agreement is that you repay the funds together with interest and other borrowing costs over a fixed period. Typically, hard money loans have short loan terms of up to three years. They’re popular with borrowers such as property flippers, who use quick cash to renovate and sell homes quickly.

That said, hard money loans are a bit of a mystery to those who have never used them. As such, you might have some misconceptions about them. We’ll debunk some of the most common hard money loan myths in today’s post.

They are for people who are desperate for cash

Borrowers rely on these loans because of their benefits — not because they don’t have any other choice. Generally, a hard money loan comes with the following benefits and features:

• Fast turnaround – You can have the money in as little as seven to eight days. Traditional loan applications usually have a lengthy review process, which might not be ideal if you’re looking to close the deal quickly.
• Higher chances of approval – As long as you’ve got the right assets, most hard money lenders have no problem giving you the cash you need. Loan amounts are usually between 50-70% of the property’s value.
• Flexible arrangement – Instead of dealing with faceless financial institutions, hard lenders are more approachable. You can even negotiate your repayment schedule or other terms of the contract.

They’re too risky and expensive

It’s true that if you default, the hard money lender seizes your property. But you can avoid this by paying off the hard money loan quickly. This trims high-interest costs and maintains affordability. Remember, this arrangement is not a financial trap. Lenders also need to offset their risk.

They’re “no-doc” loans

This type of loan will require some paperwork so the lender knows who you are, your plans for the property, and if you’ve got the means to service the debt. While the process is generally faster, that doesn’t mean that no documentation is required.

Hard money lenders are predatory

The types of people and institutions who offer this type of loan are usually just as legitimate as traditional lenders. A reputable lender cares about your exit strategy so you can both profit without hassle. Of course, you’ll want to conduct thorough research into your lender before reaching an agreement.

Now that you know the truth about these kinds of loans, you’ll feel confident moving forward. For more information on how we can help, please contact our team today.