A hard money loan is a loan which is secured by real property. Typically, the loans are extended by individuals and companies, and not the banks. They are preferred by house flippers or real estate investors. Hard money loans are also referred to as asset loans, STABBL loans, or bridge loans.
Hard money loans: Pros
The greatest advantage with hard money loans is that they are asset-based. Consequently, the credit-worthiness of the borrower does not matter. What matters is the loan to value ratio. Most of the hard money loan lenders would ask for a loan to value ratio of 80 % whereas others may ask for a lower percentage.
Second, the traditional financial institutions can be strict in meeting the minimal requirements. In addition to that, the approval process in traditional financial institutions may be long. Borrowers save time when they use the hard money loans process.
Third, hard money loans are flexible in nature. In connection to this, the underwriting process is flexible. As a matter of fact, some lenders may offer customized loan services to niche markets or individuals. For instance, if the borrower lags behind in payments, he can negotiate terms and conditions with the lender.
Hard Money Loans: Cons
The biggest challenge that comes with hard money loans is the total cost of the loan. What one pays in a hard money loan is higher than traditional banking. The loan comes at a premium and attracts a higher fee.
Traditional financial services offer a longer repayment period. They have a wide clientele, have more resources, and through pooling these resources, they are able to offer a longer repayment period. This is not the case when it comes to hard money loans.
The extension of the hard money loan can be a very difficult time for the borrower. Traditional financial institutions have laid down procedures on what to do in case the borrower needs an extension- in most cases, the same terms and conditions apply. An extension on hard money loans could attract higher fees and a higher interest rate.
Conclusion
It is important that one does a comprehensive review of the providers in the market who deal with hard money loans. This is important for the purpose of comparison and helping one to make an informed decision. If one doubts that they may feel to keep up the cost of the loan, then, the best thing is not to take the loan in the first place.