Are Hard Money Loans Better Than Bank Loans?
Yes, hard money loans are better than bank loans for numerous reasons, the primary one being that they are suited specifically for real estate investing, so it makes sense for an investor to fund his or her venture in this fashion. But this is only one reason why these types of loans are so appealing. There are plenty more.
When a real estate investor is in need of cash to finance a purchase, the benefit of having a short-term loan outweighs any bank’s long-term agreement. The purpose of real estate investing is to purchase a property and have it become profitable either by renting or renovating and selling it. Hard money loans are short-term loans, meaning they are paid back quickly and removed from the overall investment’s bottom line. This, in turn, helps the property turnover its anticipate profit in a shorter period of time without the lengthy payback and interest of a bank loan.
Short Approval Process
Banks not only spread out loan payments so they can accumulate more interest, they also take up to 30 to 45 days to approve a real estate investment loan, and many investors don’t have the luxury of waiting that long. Escrows themselves are as short as 30 days, and if the property is in foreclosure, which is optimal because the purchase price is usually a steal, the transaction must be in cash. Hard money loans provide money upfront in as little as a few days, so if the investor has a piece of property in mind, he or she can secure the cash for it right away.
No Credit, No Problem
Unlike traditional bank loans which require a solid credit standing and plenty of collateral to back it up, the hard money lender is going to use the property for sale to support the funding. If the borrower defaults on the loan, the investment property becomes the lender’s possession. This is a huge advantage over bank loans for those who are just getting into real estate investing or who have an unfavorable credit score. Lenders don’t look at the borrower; rather, they look at the property the loan will be purchasing.
Alongside these benefits, hard money loans can have flexible interest rates. In states where real estate investing and hard money lending is hot, the lenders compete for business by reducing loan interest rates. Big banks have plenty of business with or without commercial property lending, so this is just one more reason why hard money loan opportunities are better than walking into the bank.