28 Years of Lending Experience

  • (800) 559-0345
Bank, Private Money, Real Estate

When Should I Use a Hard Money Loan?

Hard Money Loans can be an effective tool to leverage in a competitive buyer’s market. The flexible underwriting terms, less stringent personal financial requirements, and quick sourcing are all positive reasons to consider a hard money loan. For those looking to foray into real estate investment, or have a competitive edge for residential or commercial properties, hard money loans can be a great source of cash flow.


When looking at when to obtain a hard money loan, there are first two factors to consider. First, always consider markets on whether it is a good time to buy property. Furthermore, it is also important to listen to financial experts to gain insight on loan advice. When the markets are in the borrower’s favor, and borrowers receive sound financial advice, it is safe to proceed with the hard money loan.


Best Practices For Using Hard Money

Hard money loans are great tools to utilize for different real estate needs. Utilizing best practices for hard money loans can ensure borrowers receive the most for their investment.

  1. Using The Cash Flow: One of the most important parts of obtaining a hard money loan is having a plan on how to use the money. This is dependent upon what the project looks like, and how hard money can help reach the borrower’s goals. Budgeting effectively, and calculating things such as purchase price to after repair value can make sure that the loan is worth the project.
  2. Repayment Plan: The most important thing to consider is the repayment plan for a hard money loan. Unlike traditional loans, hard money loans only have borrowers pay a monthly interest rate on the loan that does not go toward the principal. This means that the borrower needs to consider how they will pay back the interest, and how they plan on repaying the principal once the loan life cycle is complete. For those looking to flip houses, selling the property is the most basic way to repay the loan. However, if the property is residential or commercial, considering other forms of repayment is critical as well.

Best Investment Types for Hard Money Loans

There are many ways to invest with a hard money loan. Here are some of the best ways to utilize this loan form compared to the traditional loan.

  1. Real Estate Investment: One of the most popular ways to utilize a hard money loan is in real estate investment. One of the advantages of a hard money loan is that it can be a competitive edge in a seller’s market. Since traditional loans often take months to secure, hard money loans can be critical to securing the cash needed to purchase a property. Like most loan types, loan agents will expect the borrower to place a down payment.
  2. House Flipping: Another great way to utilize a hard money loan is by funding a house flip. In this case, borrowers secure distressed properties and renovate them to turn a profit. In these cases, the goal is that after selling the renovated property, the sale will then cover the loan payment and leave more for profit. Depending on the market, this can be a lucrative investment practice when completed with a plan.
  3. Business Costs: This may not be as popular, but is equally effective. If purchasing a commercial property, funding can go towards renovations of this property. Along with renovation, it can also cover things such as materials, training, and even personnel. This can aid in the growth of the business, especially during high periods of change.

When to Not Use Hard Money

There are some instances when hard money may not be as effective as a tool. As always, it is important to pay attention to the market and advice from trusted financial advisors. Here are a few other instances to avoid hard money:

  1. Unable to Pay On Time: With higher interest rates, and a shorter repayment period, only those that have an effective plan for repayment should pursue a hard money loan. 
  2. Qualify for Traditional Loan: If the potential borrower’s credit is strong enough for a traditional loan, it may be a path to consider for real estate investment depending on need.
  3. Risk of Loss: With hard money, the property itself is collateral. That means if the borrower defaults, the lender obtains the property. If this is something that the borrower cannot risk, they may reconsider the hard money route.

As with any loan form, making sure that you are able to repay, and can be utilized effectively are the most important points to consider. For trusted lending experience, consider JMJ Funding for private lending needs.

Apply Now

Speak to an expert at (800) 559-0345