Home Finance / Investment Why Hard Money Loans Are More Profitable?

Why Hard Money Loans Are More Profitable?


Hard money loans involve receiving money from individuals and investors rather than conventional mortgage lenders, like banks or credit unions by keeping property as collateral. When the loan is needed on urgent basis or the credit score is not up to the mark, hard money loans can be the lifesaver. The duration of loan is usually a year, but it can be prolonged to 2 to 5 years.

Why Hard Money Loans Are More Profitable

What Makes Hard Money Loans Different?

Majority of the loans usually demand a surety that the borrower can return the loan on time, and which is why the lenders always ponder over the credit scores and income of the borrower before accepting a loan. Having an impressive past record of returning the loaned amount on time can easily qualify you for the conventional loan.

However, loans from traditional lender take too much time; no matter how good is your credit score or monthly income. If the lender is not satisfied with your score or earning, your loan might take more time or get rejected once and for all.

Hard money loans are different; rather than credit score or earning, they are based on the collateral used to secure the loan. If in any unfortunate situation, the borrower fails to repay the money, the hard moneylenders take possession of the collateral and sell it. When it comes to the hard money loans, worth of the collateral weighs more than the borrower’s financial position.

These loans last for a shorter duration as compared to traditional loans, usually around one to five years. Many people try to keep it short termed because the interest rate of hard money loans is quite higher than traditional loans.

Why Hard Money Loans Are A Safe Bet?

Even with high interest rates, hard money loans are said to be profitable for people who cannot get traditional funding at the time of need.

Less Time-Consuming:

Since these loans are more centered upon the collateral’s worth rather than the financial situation of borrower, they do not take much time to be processed. Lenders do not get the ownership of your property and they do not have to dwell over invest time over things like loan application, bank statements, pay slips, and so on. Once your lender is convinced with your collateral, the loan process can be completed quickly so that you can promptly invest it to close an urgent deal.

Greater Flexibility

Hard money loan agreements offer a greater room for the flexibility, unlike the traditional loans. No standardized underwriting has been done and every deal is considered in a different way. After a few negotiations, you can mold the terms as per the mutual convenience like repayment schedules. When financial institutions are the lenders, such as banks, you have to abide by strict regulations; whereas, when you are borrowing from the individuals you can talk them into tweaking your loan agreement terms. Some hard-money lenders provide a variety of loan programs to choose from.

Quick Approval

The integral part of hard money loans is the collaterals. When you are purchasing a property for investment, the lender will provide you with the money as much as the value of your property. When you want to borrow money by keeping your own property as collateral, the lender will consider the worth of your property before agreeing on the loan amount. In such cases, bad credit score does not matter much.

Majority of these lenders do not have high LTV (loan-to-value) ratios. Their maximum LTV ratio falls in between 50 percent to 70 percent, therefore having assets can help you get the hard money loans easily. The low ratio can give lenders the satisfaction that even if you fail to pay back the money, they can sell your property quickly at sufficient rate to get their money back.

When To Capitalize On Hard Money Loans?

Hard money loan can be your best option when you need to have a short duration loan. Usually Fix-and-flip investors take this loan amount to buy, revote, and sell a poor condition property within a year at the right price. It is preferred to have prior experience (at least of 2+ flips or rehab project) before you try this loan. Novice investors can also try if they are working along a contractor.

How To Find A Hard Money Lender?

To pick the investor you need to reach and connect with many investors. You can start searching a lender who loans money against collateral within your area. When you have prepared a list of real estate agents and investors near located locally, reach them out, and discuss your needs. Pick the one that meets all your needs conveniently and start making profit with fix and flip investments.


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