Hard money loans are a competitive navigational tool in the real estate market. No matter your purpose in purchasing real estate, hard money loans can offer assets to not only secure the property of your dreams, but fix it as well. Since hard money relies on the property itself as collateral, it opens doors to borrowers who otherwise may not qualify for a conventional loan. Hard money loans come from private entities and therefore have less stringent underwriting than traditional banks. This offers a wealth of opportunity for potential real estate investors – especially those new to the game or looking to flip a home. Below we outline a few ways flexibility throughout the hard money loan process can be your key to securing your next property.

 

How are Hard Money Loans Flexible?

• Diverse Body of Borrowers: As stated above, hard money loans are different from traditional loans in that they are generally more accessible to borrowers. Traditional loans require great credit scores, financial history, and proof of income. Since the hard money loan relies on the property as collateral, there are fewer barricades for potential borrowers to obtain the loan. However, this does not mean that financial history does not matter. Oftentimes hard money investors will still require credit checks, and higher down payments due to the risky nature of this loan.

 

• Negotiable Repayment Period: Another source of flexibility is the loan repayment period. In comparison to the traditional lending period of 30 years, hard money typically comes with a shorter period of 6-18 months. This provides the flexibility to pay off the loan and move to another project without worrying about loan repayment. This asset can be particularly helpful for those flipping homes as it frees up cash flow for new ventures. On the other side, certain private lending companies may also allow you to extend the loan repayment period to match traditional loans. As an example, JMJ Funding offers 30-year fixed financing for owner-occupied properties.

 

1. Communication with Lenders: Another flexible piece of hard money loans is the ability to communicate with the loan lender. Since you are working with smaller, private entities, there is more communication that can help you negotiate flexible terms. Due to this, hard money loans can often meet the needs of both borrowers and investors when it comes to loan repayment.

 

1. Pay Loan After Repayment Period: A flexible asset of the hard money loan is the fact that borrowers do not have to pay off the actual loan itself until the end of the repayment period. Instead, borrowers only have to worry about paying off the interest on the loan during the payment period. This is helpful, especially for house flippers who choose to use profits from the property to pay off the hard money loan. This is also part of the reason you can expect higher interest rates on hard money, as there is more risk in restoring a distressed property than in some other property forms.

 

• Flexible Usage: Borrowers use hard money loans to fit their needs. Not only do borrowers utilize hard money for property purchases, but they can also apply them to a large range of needs. Property remodeling, the cost of labor, and even professional development for a commercial building can go under the umbrella of hard money. Knowing how to utilize it is the best benefit for wielding a hard money loan.

 

Weighing the Cost of Hard Money Loans

Although there is a great amount of flexibility with hard money, it is important for a borrower to prepare for setbacks along the lending journey. For example, due to their risky nature, hard money loans have higher interest rates than other loan forms. This also means that it is important for borrowers to have a strict exit plan for repayment, as their property can be claimed by the lender in the case of loan foreclosure. With hard money, having a good plan and working with trusted lenders with experience, especially in your particular market, are the best ways to decide if a hard money loan is for you. With over 25 years of lending experience in the California area, JMJ Funding has great experience in one of the most challenging real estate markets. Together, we can see if a hard money loan’s flexible terms work for your benefit.