There are many alternative lending options and they should be considered before you jump into real estate investing. It doesn’t matter how prepared you are or how great your investment opportunity is, getting a loan from a traditional lender is difficult. Because traditional lenders have so many strict regulations, a less than perfect credit score will cause most potential borrowers to leave the bank empty-handed. This is why you should consider your alternative lending options.
According to Evercore Wealth Management, alternative lenders are much more flexible than traditional lenders:
“At their core, alternative lending platforms and traditional banks have the same functions and are subject to many of the same regulations governing credit cards and banks. But alternative lenders are more nimble and efficient than banks, as they don’t need to maintain significant reserve requirements, an expensive branch infrastructure, or embedded practices such as manual data input. Instead they are able to tap into a different source of funding and use technology to gain operating efficiencies.”
Hard money loans are short-term loans for a real estate investment. These individual generally flip the properties in order to make a profit. Because the hard money loan process is significantly shorter than that of a traditional loan, investors use hard money to begin your real estate investment quickly.
There are many reasons why a hard money loan may be beneficial to a real estate investor. For example, if a borrower is unable to get a loan from a traditional lender because of bad or no credit. Because traditional lenders have strict regulations for loans, it can be extremely difficult to qualify. There is no room for leeway or negotiation, even if your credit score is just a point off. Hard money lenders are able grant loans to individuals with bad credit because they focus mostly on the value of the property since the property serves as collateral.