Why are hard money loans approved so quickly?If you are considering a hard money loan as an option for funding your next investment, it may be for one popular reason: speed.Hard money loans are typically secured much faster than a traditional loan.Let’s get into what exactly determines how long it takes to have a hard money loan approved.What is hard moneyFirst, what is hard money? And what are hard money loans? Hard money refers to actual, physical assetsHard money loans are loans, unlike traditional loans backed on the borrower’s credit, are backed on collateral, via property.This means that the lender takes the property should the loan not be paid off.Hard money loansHard money loans are loans offered through private lenders instead of through traditional banks.These lenders can be individuals or companies.Lenders do not consider your credit history in the same way that traditional loans might.Instead, they determine the value of the loan on the value of the property itself.The actual, tangible asset being considered is what makes a hard money loan “hard.”Why do people turn to hard money loans?Hard money loans are a great option for people who may be starting a new business or investing in a new property, but who do not have the history to qualify for a traditional loan, whether because of financial hardship or simply not having enough time behind themHard money loans are also a strong option for people who need money quickly but do not have time to wait on a traditional loan's approval.Is it true that hard money loans can be approved in a matter of days?Traditional loans are known for taking nearly a month to be approved, so a loan being approved in days may sound too good to be trueBut it’s true–many hard money loans can be finalized in a matter of days.That being said, it is important to note that there are always special cases when hard money can take longer than expected.The advantage of speedThere are plenty of instances where waiting on a traditional loan just won’t do.In fact, sometimes waiting on the traditional loan could hurt your business in the long run.Unexpected costs: sometimes businesses, whether new or established, have unexpected costs that necessitate a loan quickly.Hard money loans can be used to cover costs including fixing damage or replacing equipment.Sudden growth: businesses on the verge of sudden growth may also need funds to cover costs that grow with the business.A competitive real estate market: The real estate market is another area where speed can give you an advantage.We are living in a seller’s market, and sellers want buyers who have funds readily available.Hard money loans can give you a competitive edge when bidding on your next investment property.Why do traditional loans take so long?Traditional loans can take anywhere from a month to two months to be finalizedThis is because applying for a traditional loan involves a long process: first, you apply, a lender checks your credit, they decide if they trust you to pay it back, you must meet financial qualifications, and then if all goes well, you are approved.However, there are often hiccups along the way that can cause the already lengthy process to drag on even longer.A few common factors include the following: Title problems: if the property is in a trust or has a lien, these issues may need to be resolved before a traditional loan can go through.Missing documentation: Not having documents such as W2s prepared beforehand can slow down the process.Appraisals: lenders want to know what they are funding before they release funds, and they rely on appraisals to just know what your property is worth.But securing an appraisal can take a while.Applying for hard money loansHard money lenders don’t need to worry about history or credit because they have the collateral to protect themselves.While traditional lenders use credit to be sure that their loans will be paid back, hard money lenders know they can collect the property should the loan not be paid.In some cases they may perform a credit check, but usually they are just interested in assets.Applying for a hard money loan is usually fairly simple.First, if you are using the loan to buy property, you should prepare a down payment and have proof of income and a plan for how you will pay off the loan.Then you apply.The lender will work with you to establish the loan amount, interest rate, and payment period.A few things to note: Your loan will be based on the value of the property using a loan-to-value ratio (LTVO), however, this rate will probably be lower than a traditional loan.A hard money loan’s LTV will usually fall around 70%.This is one way lenders protect themselves from losing money.Your interest rate will probably be a bit higher than a traditional loan, again, to protect the lender.Your loan period will be shorter than a traditional loan, making it a great option for investing in properties that you plan on renting or selling and for businesses experiencing high growth.
