what is a hard money loan

Real estate investors often reach out to hard money lenders to finance their deals. Traditional banks may request formal property appraisals, good credit ratings, tax filings, and other documents before approving a loan. You may have to wait for weeks on end for the bureaucratic process to come to its conclusion, most times making you lose out of a sweet fix and flip deal.

The average American has approximately $38,000 of debt, without including mortgages. It’s no surprise that 68% of the population has bad credit ratings. Is a recent foreclosure or credit card issue preventing you from accessing a loan option to expand your real estate portfolio? Think hard money loans.

What Is a Hard Money Loan?

Hard money loans are simply short-term credit options taken with a real estate property as the collateral. It allows real estate investors to access quick cash to finance their deals. You can typically receive your hard money loan within seven or eight days.

Traditional lenders use a mortgage underwriting system that is more stringent. You may need to prove to the bank that you are financially prepared to repay the loan, often bypassing ‘risky’ deals. With the fast-paced nature of the real estate industry, the red-tape may have you losing out on ideal properties for your fix and flip business.

Is a Hard Money Loan Right for You?

Now that the question ‘what is a hard money loan’ is effectively tackled, you may need to think through whether the finance option is a good fit for your business. Hard money lenders in Sacramento, CA focus more on the property value, not credit history, as the primary consideration for loan approvals. You only need to convince the private money lender that you can close your deal.

If you cannot access a loan due to bad credit, a hard money lender may be more lenient than your bank. Besides, the provider is less risk-averse than the traditional mortgage lenders. Your bank may be hesitant about financing certain projects. To cover for the increased risk, a hard money loan has a higher interest rate. You can easily diversify your real estate holdings.

Deals That You Can Finance Through a Hard Money Loan

It is worth noting that hard money lenders aren’t ideal for all financial transactions. Borrows often qualify for loans to purchase most types of properties including industrial, commercial, multi-family residential, and land.

With stricter rules regarding owner-occupied residential property, only a few lenders agree to offer owner-occupied loans. You may need to first consult if the hard money loaner accepts such applications.

However, the hard money loan is an ideal option for fix and flip deals, construction loans, land purchases, and real estate investors under a time constraint. Most lenders will specialize in a niche property type, and you may need to research the hard money loan company before making an application.

You can now answer the ‘what is a hard money loan’ question comfortably and list several instances that would be perfect to utilize the finance option. Are you still interested in hard money personal loans in California? Reach out to ARC Private Lending.