Have you ever heard the term “hard money lender” thrown around, but aren’t entirely sure what it means?
In this article, we’ll discuss what exactly a hard money lender is and why you may need one.
Hard Money Lenders – Who Are They?
Before we delve into why one might choose to work with hard money lenders in Atlanta, we must first understand what exactly a hard money loan is.
A hard money loan is a short-term loan that is secured using real estate. The people who lend the hard money are typically small groups or private investors. And, instead of lending you the money based on your credit score, like a bank or credit union would, the lender bases the loan on the property you are buying.
The amount of money the hard money lender will loan you will be determined by the value of your property.
Often times, the term of the loan is 12 months. However, it isn’t uncommon to extend the loan for longer terms of 2-5 years.
The loan requires the borrower to pay only interest or interest plus some principal. And typically, you will also have to pay a balloon payment at the end of the term.
Who Uses Hard Money Lenders?
There are several types of people that typically use hard money loans. These include:
Flippers
These are people who are looking to buy a run-down property, fix it up, and then flip it for a profit. Typically, flippers don’t want to deal with the hassle and red-tape that comes with taking out a 15-year loan on a property. So, if a home looks like it could be fixed and flipped in a few short months, these individuals will often opt for the hard money loan instead.
Builders
Often times, builders will take out a hard money loan so they can build a property, sell it, and then quickly pay off the loan.
Real Estate Investors
Sometimes, real estate investors will come across property that they want to snatch up in a hurry. If the investor doesn’t have money on hand to pay for the property, a hard money loan can expedite the process.
Individuals With Poor Credit
Qualifying for a loan through a bank or credit union isn’t always easy. Often times, people will be rejected for traditional loans if they’ve had a recent foreclosure, bad credit score, or another red flag in their credit history.
But, if these individuals have some cash on hand to make a down payment, they can use a hard money loan to buy a property that would otherwise be unavailable to them.
Let’s say, for example, that you lost your job a few years back and your home went into foreclosure. Since that time, you’ve found a new job that brings in a healthy income. And, you’ve also found a great deal on a real estate investment. But, there’s one problem: Your bank won’t grant you a mortgage with the foreclosure on your record.
Chances are, hard money lenders located in Atlanta will provide you with the opportunity to purchase the property before the deal slips through your fingers.
What Types of Property Are Used for Hard Money Loans?
A borrower can use their hard money loan for almost any type of property. This includes single-family homes, multi-family homes, commercial properties, industrial properties, and land.
You’ll find that some hard money lenders specialize in a specific type of property. Make sure to ask the lender up front what types of property they are willing to deal with.
Many hard money lenders avoid working with owner-occupied residential properties because of the extra rules and regulations that come with it.
Why Use Hard Money Lenders Atlanta?
Now, you’re probably wondering why someone would opt for a hard money loan instead of using a traditional method to obtain a loan.
After all, hard money loan rates are much higher. And, the borrowing period is extremely short-term.
Simple Application Process
Applying for a traditional loan typically involves a long waiting period. Hard money lenders, on the other hand, can approve your loan in as little as one to two days. It may even be the same day, in fact.
This is one of the reasons this type of loan is so popular amongst real estate investors and house flippers.
Easy to Qualify
As we stated earlier, your credit history and income status don’t affect whether or not you qualify for a hard money loan.
Instead, the loan decision is based on the value of the property. Depending on your investment plans and the equity of your investment, you may be able to qualify for a much larger loan.
Lower Down Payments
Unlike conventional lenders, hard money lenders are concerned with the local competition.
This means that many hard money lenders will lower their interest rates in order to better compete with the local market.
However, interest rates may be higher if the lender is taking a big risk with the investment.
Even with these benefits, it’s not necessary to work with hard money lenders for all deals. If you are purchasing a property and you have good credit, a solid income history, and no issues with sales or foreclosures, then a hard money loan isn’t necessary.
Instead, you should use the conventional method of obtaining a loan through a bank, as long as you have time to wait through the lengthy approval process.
Hard Money Lenders Atlanta: Wrap Up
We hope this article has given you a clear picture of what a hard money lender is and why you might choose to use one.
Before choosing a hard money lender to work with, make sure you do your research. Because as we said, you may be able to find one who offers a much lower interest rate than another.
If you’re looking to get started on your hard money loan, contact us today. We make the process incredibly fast and simple.