Hard money loans are a great way to foray into real estate investment. Under the right circumstances, hard money can provide an opportunity for borrowers to turn their investment goals into reality with a diversified portfolio. When it comes to conventional loans, stringent underwriting and lengthy background approval checks can come in the way of a borrower’s real estate plan. In these cases, and in certain other scenarios, hard money loans can be the bridge between borrowers and their future investments. Today, we’ll take a look at the scope of when may be the best time to use a hard money loan, and things to consider in your investment journey.
Ideal Times for Hard Money Loans
- Quick Timing: It is no secret that loan processes can be challenging and drawn out, depending on the loan you are trying to receive. For most conventional loans, the potential borrower must go through a bank. Since it is through an institution, approval often takes months, with no guarantee it will work out in the borrower’s favor. In certain markets, hard money loans can not only get you the funding you need on a quick turnaround, but can also allow for first access to certain properties. This can come as a huge benefit in a competitive real estate market.
- Credit Build: As stated above, conventional loans often require long background checks that delve into a person’s personal financial history. If you are someone without a robust credit score, you may not qualify for a traditional loan. Since hard money loans rely on property as collateral, they do not take personal financial history into as much of an account. This allows borrowers without top-tier credit to still obtain the loan they need. Plus, the successful payoff of the loan positively impacts the borrower’s score, signaling to investors that this is a safe future investment.
- Fix and Flip: If you, like many in today’s real estate market, are looking for a distressed property to renovate, a hard money loan is a great space for this venture. Oftentimes, banks will not approve loans for distressed property, as it can be a risky investment. Hard money loans offer perfect opportunities for renovation hopefuls as the loan itself does not need to be paid off until the end of the loan period. This grants space for a borrower to buy, fix, and sell a property for profit, therefore paying off the loan after renovations. With this in mind, borrowers can expect higher interest rates as they are looking to utilize a hard money loan.
- Construction: To follow along with the fix and flip property investment, if you are planning on pursuing any construction, a hard money loan may be the right move. Banks often do not fund construction whether in terms of renovation or remodeling a distressed property. On the other hand, hard money investors factor in the risks associated with the interest rate, providing an opportunity for borrowers to follow through with construction.
Whether trying to snag a premier property in a timely manner, building credit, or remodeling a distressed house, hard money loans can provide a breadth of opportunity for investors. With over 28 years in the real estate investment sphere, JMJ funding can be your connection to the perfect project investor.
