Why Investors Choose Hard Money Loans Over Traditional Lending

A hard money loan is a short-term loan secured by real estate. The loans are typically for 12 months and have a higher interest rate than a traditional loan. The reason for this is that the loan is based on the property's value, not the borrower's creditworthiness. This makes it a more risky loan for the lender, but it also means that the loan can be approved more quickly.

Here are three major criteria where hard money loans and traditional lending differ and why one is better than the other, according to investors:

1. Lending Gap between Acquisition and Refinancing

Conventional loans generally require a larger down payment than hard money loans. Lenders typically expect a down payment of 20 to 25 percent to acquire the property. After the initial purchase, fix-and-flip developers still need capital to cover the upfront costs of renovating an older property to make it saleable. For most investors, it is impossible to use conventional financing and pay for the entire renovation out of pocket.

Hard money loans are a type of loan that is typically used to finance the purchase and renovation of a property. They are usually used when traditional financing is not an option and can be useful in your financing toolbox. With a hard money loan, you could acquire the property with as little as ten percent down, renovate it, then shop for permanent financing.

This means that if the property is appraised at a higher value following renovations, the owner may be able to refinance the loan for an amount that covers the original loan and closing costs without spending additional money.

2. Flexibility

Hard money lenders are different because they don't have to go through the same channels to give out loans. This allows them to work with a wider range of borrowers, including those who might not be able to get a loan from a bank.

Hard money lenders don't have to follow the same rules as banks so that they can approve borrowers more quickly. They also look at things like the borrower's experience and the exit strategy for the loan instead of just the credit score. So if you have a good reason for a low credit score, a hard money lender may still give you a loan.

3. Fast Approval

A hard money loan is a type of short-term loan typically used to finance a property's purchase and renovation. Hard money loans are usually provided by private investors or companies, as opposed to banks. The terms of a hard money loan are usually shorter than a traditional loan, and the property itself secures the loan.

Conclusion

There are a number of reasons why investors choose hard money loans over traditional lending. Hard money loans are typically easier to obtain, have shorter terms, and offer higher interest rates. These factors make hard money loans an attractive option for investors who are looking for a quick return on their investment.

Jaken Finance Group offers the type of funding that traditional lenders would not even consider offering. New and seasoned investors flock to us as we find a way to make your deal a success. We understand everyone’s circumstances are different, and if you’re interested in a hard money loan in Florida, we may be able to help! Get in touch with us today and let’s talk!