what is a hard money loan

If you are looking to acquire real estate, you might be struggling to find a loan that works for you. This is especially true for small buyers and new buyers looking to expand without breaking the bank. Fortunately, hard money loans offer the opportunity to secure a loan for real estate in an affordable and easy-to-understand way.

What Is a Hard Money Loan?

If you’ve never heard of them before, you may be wondering, “What is a hard money loan?”. A hard money loan differs from other types of loans in that it’s secured by collateral. This means that hard money lenders are less concerned about the potential for non-payment as the value of the collateral is the primary concern. So long as you are buying property, you can more than likely qualify for a hard money loan. Property like this can consist of both commercial and residential buildings or land.

How Does a Hard Money Loan Work?

Hard money loans are often used to buy properties that are under foreclosure or otherwise in distress. This makes them perfect for people looking to buy properties and flip them for a greater profit. However, buying houses outright can be difficult, making a hard money loan the perfect solution towards getting started as a flipper.

Also often called bridge loans, this type of loan helps bridge the gap between the purchase and the sale of a property. You can purchase a property, renovate it, and then flip it for a significant profit. You can then use part of the profit to pay back the loan while keeping the excess for yourself. Using this strategy, begin building yourself up as a buyer and creating a useful portfolio.

In order to qualify for a hard money loan, you must have collateral that is worth the cost of the loan. For instance, the property you are planning on buying. The hard money lender will evaluate the value of the property and give you an amount based upon the estimate. Oftentimes hard money loans take only seven to eight days to acquire, making them quick, easy, and efficient. Furthermore, hard money loans will usually charge lower monthly payments than other types of loans, making them more beneficial to the borrower. However, some hard money loans will also terminate after a specific period, resulting in a balloon payment. This, though, should coincide with the sale of the property, meaning you can pay off the loan without worry.

If you are looking into becoming a property buyer for the purpose of flipping houses for profit, hard money loans may be just what you need to get started. While you might have been asking yourself, “What is a hard money loan?” at the beginning of this article, hopefully now you have a better understanding of how this type of loan can benefit you. To learn more, and to see if a hard money loan is right for you, contact a representative from ARC Private Lending.