Here’s Why Hard Money Loans are Ideal for House Flipping
Hard money lenders have been around for a long time and continue to be a viable option for house flipping today. Traditional financing can be difficult to obtain because of strict regulations and crowd funding can take too long to put in place. If you are flipping property, hard money is your best option.
For individuals who are new to house flipping, hard money loans are the principal form of financing. Hard money and private money loans are ideal for novice house flippers because hard money lenders care more about the potential value of the property than the borrowers financial qualifications.
According to SmartAsset, hard money loans can be a great way for house flippers to get a loan that works for them:
“Hard money lenders make loans for flippers and real estate developers on slightly different terms than banks. These loans are designed for people who don’t necessarily have great credit but need money to complete their renovations. Hard money loans are short-term loans that typically need to be repaid within a year or so.
You might consider getting a hard money loan if you’ve been turned down for traditional financing. But there are some drawbacks. Hard money loan interest rates often fall in the double-digit range, which makes them a more expensive option. The shorter payoff period also means you might feel pressured to sell your flipped house quickly to avoid a big balloon payment.”
Of course, there are plenty of benefits to that hard money loans offer for house flipping:
- Convenience: Because of the new regulations on mortgage lending, applying for a mortgage takes month which makes it difficult for investors to jump on profitable investments. Hard money loans are fast and time is everything if you’re funding a large development project.
- Flexibility– Since hard money loans are offered by private lenders, you can negotiate the terms in order for you to get the loan that works best for your interest. Banks are not nearly as flexible in their terms.
- Collateral – The property itself serves as collateral for the loan in the case of hard money loans. However, you can still find that some lenders are flexible in that respect. Some lenders may allow you to secure the loan using your own assets, such as a retirement account or a residential property you own.
Developers, house flippers and long term investors are the blood of the hard money business. These type of investors main concern is getting the deal and making money from it. Most Real estate investors don’t really show much income on their tax returns but they do make enough money to make the payments, so they cannot qualify for a loan with a conventional lender. Hard Money will provide them the money they need to purchase/refinance their real estate within days without looking at their tax returns or credit.