Getting approved for a money loan can make it easier to complete your next house flipping project, but they can also help you reach a life milestone like going to college or buying your first home. It is important to know that there is no one-size-fits-all loan plan. As an applicant, you need to know exactly what you will do with your loan so you know what type of loan provider to contact. If you have been considering getting a loan to assist in renovating or flipping a home, keep reading to learn why a private money loan is your best option.
What Are Private Money Loans?
Private money loans are also known as a hard money loan. This borrowing process does not involve a mortgage broker; instead, it relies on the applicant working directly with the person who will be financing the loan. Instead of lending you money based on your credit score, you will put an asset up as collateral. In this case, it’s the house you will be renovating. If you do not pay your loan back within the agreed amount of time, you forfeit your asset to the lender.
The Benefits of a Hard Money Loan
There are a few essential benefits to investing in hard money loans over other options. Here are some of the primary reasons you should opt for private money loans:
Private money loans are quicker than other types of loans.
Dealing directly with the person who will be financing your loan means you won’t have to wait as long to be approved. In fact, you generally will know if your loan is approved within a business week.
A bad credit rating will not affect the likelihood of getting approved.
As previously mentioned, private money lenders are not concerned with your credit rating as it is not relevant in this type of borrowing agreement. Instead, you will use an asset as collateral in the event that you do not pay your loan back on time.
Working with private lenders is more personal.
Working directly with a lender can give you the opportunity to build a rapport with them. This can give you some leverage when working out the details of the loan, and your lender may also be more lenient if unforeseen circumstances arise and you need more time to pay off your loan. Hard money loans typically require anywhere from 30 – 40% down, but if you’re working with someone who has lent you money in the past, they may be willing to accept 25% down if you have previously been reliable with making your payments on time.
Private money loans are the best route to take if you have a short term house-related project coming up. They’re not only faster than soft money loans, but they can also give you an opportunity to work directly with the private lender. By building a relationship with the lender, you may be able to set more lenient borrowing terms.