5 Benefits of Hard Money Loans for Real Estate Investors
Investing in real estate is a significant decision that takes time, effort, research, and capital. One major part of research is finding a way to fund your investment property. While many investors opt for traditional mortgage loans, those who don’t qualify for a mortgage also have options. One popular method includes hard money lending. Read along as we go over the benefits of hard money loans and discover if this is the right investment method for you.
Contents of This Article:
- What Is a Hard Money Lender?
- 5 Major Benefits of Hard Money Loans for Investors
- Requirements for Hard Money Loans
- Types of Investment Properties to Choose From
- How Can Maryland Hard Money Lenders Help?
What Is a Hard Money Lender?
Hard money lending is an alternative financing method that allows investors to buy investment properties without being tied down to a mortgage loan. Generally, hard money loans are short-term loans commonly used by house flippers or developers who renovate properties.
Instead of working with a bank or financial institution, hard money loans are funded by private lenders or investor groups. Maryland hard money lenders often have fewer requirements and faster loan approval than traditional financing options. This makes them highly desirable for investors who may not qualify for a conventional mortgage.
Next, we’ll discuss the benefits of hard money loans and why this financing option is so popular among real estate investors.
5 Major Benefits of Hard Money Loans
If you need to find funding for an investment property, you may consider using a hard money loan. But why? Before choosing a loan for your investment property, it’s essential to recognize the benefits of hard money loans compared to other loan types. Read along while we go over some of the main benefits of hard money loans to keep in mind.
- Easier Approval
- Less Dependant on Credit Score
- Fast Funding
- Flexible Loan Terms
- Shorter Repayment Terms
One of the main reasons investors love hard money loans is because they’re easier to qualify for. Bank lenders look at several factors to determine whether you are eligible for a loan. For instance, you need to have a good credit score, proof of income, a minimum down payment, and more. However, hard money lenders have less strict requirements. While they’ll still pay attention to these factors, their main concern is the value of your potential investment property.
Less Dependant on Credit Score
As stated above, getting approved for a hard money loan is more accessible than a traditional mortgage loan. Most banks look for a credit score of 620 or higher. However, while hard money lenders still look at your score, it generally doesn’t matter, especially if it’s around 600. Instead, they care more about your investment property, as that’s used as collateral for the loan.
Getting approved and receiving funding for a traditional mortgage loan can take several weeks or months. However, hard money lenders can approve your loan application within a matter of days or weeks. In turn, you can secure your subject property and start your investment project much quicker with a hard money loan.
Flexible Loan Terms
Another benefit of hard money loans is more flexible terms.
For instance, hard money lenders can generally give you a loan tailored to your needs. Depending on your investment goals, hard money lenders can adjust the term length, interest rates, loan-to-value, and more on a case-by-case basis. So, you can work with your lender to modify your loan terms to meet your goals. Additionally, if you find that you need to adjust your term, you can work with your lender to do so.
Shorter Repayment Terms
While short repayment terms can be a benefit or disadvantage, it depends on your investment type. Instead of being stuck with a 30-year mortgage loan, hard money loans offer shorter terms, generally a year or two. Short repayment terms are more desirable than long-term mortgage loans if you’re looking to fix and flip real estate. Additionally, if you’re looking for bridge financing until you qualify for a mortgage loan, hard money loans are great in the meantime.
Requirements for Hard Money Loans
If you’re looking at the benefits of hard money loans, you’ll want to look at the requirements to ensure you meet them. While hard money loans are generally easier to qualify for, you still have to pay attention to your credit score and income. That said, here are some of the main requirements for hard money loans for investors to pay attention to.
- Down Payment
- Reasonable Target Property
- Real Estate Experience
- Proof of Income
- Minimum Credit Score
- Required Documentation, including:
- Loan Application
- Tax Records
- Bank Statements
- Deed of Trust
Keep in mind that the documentation and requirements differ for each lender and loan type. As such, checking with your hard money lender to see what you need to do before getting a loan is important.
Types of Investment Properties to Choose From
Hard money loans aren’t right for every type of investment property. For example, with shorter repayment terms and high-interest rates, you likely don’t want to use a hard money loan for a long-term investment property. Instead, short-term investment methods are generally better for hard money loans.
For instance, the most common types of properties that investors use hard money loans to fund include:
- Fix-and-Flip Investments- Hard money loans are great for investors who want to fund, fix, and flip a property quickly. Generally, loans are paid off within 6 to 18 months, making it great for a quick turnaround.
- New Construction- Investors that want to start a new development project can benefit from hard money loans. After all, there’s not a lot of time to sit around and wait for mortgage approval for a new construction project.
- Commercial Properties- Commercial hard money loans are great for several different investment types, like office, retail, or industrial real estate. Additionally, commercial hard money loans generally have higher limits, allowing you to fund larger projects.
- Rental Properties- Investors that don’t qualify for traditional financing may opt for hard money loans to finance rental investments. Although they’re not generally great for long-term investments, hard money loans can be helpful if you need quick financing.
- Multifamily Investments- Funding a multifamily property with a hard money loan can give you higher returns and allow you to diversify your investment portfolio.
How Can Maryland Hard Money Lenders Help?
If you’ve explored the benefits of hard money loans and want to explore this funding method, you’ll want to find a lender. However, finding a lender to work with isn’t complicated with Maryland Hard Money Lenders. We offer several options for investors looking to secure funding for their next investment.
Whether you need a fix and flip loan, a new construction loan, bridge financing, or funding for a rental investment, we’ve got you covered. Contact Maryland Hard Money Lenders today to learn more about our services and fill out a loan application today.