The concept of a hard money mortgage has been around for quite some time, but their usage has picked up dramatically in recent years. The financial crisis hit everyone: from large banks to “Mom and Pop” businesses, it seems that everybody felt the sting of the housing crash. Fortunately, though, the dynamics associated with real estate lending have changed, creating new opportunities where there once were none.
Hard money lending terms usually relegate them for commercial use, as they are perfect for investors interested in turning a property over for a solid profit, but in certain cases, their use for residential properties can make perfect sense.
Knowing when to turn to a secured lender is crucial to making sound investments. If you are unsure about your current situation, consider the following points to help you determine your level of need:
What are your intentions with the property?
Investors know that securing capital is a necessity in real estate. Many times, a distressed property is discovered, opening up an incredible opportunity for the buyer. Unfortunately, the time necessary to secure funding through standard channels simply takes too long, and the need for a hard money mortgage arises. If the buyer has a solid plan for the property, and has done the necessary leg-work to get the vacancy filled quickly, pursuing a secured loan makes perfect sense. The loan can be used to acquire the property, and because the new owner has a business or resident in place, repayment can ensue.
Is the property distressed?
Many real estate investors know that distressed properties create incredible opportunities for profit. In most cases, the lien holder is ready to unload the property at a substantial discount, as they simply want to recover the tied up capital. Distressed properties have helped to give rise to hard money lending houses.
Research into hard money lending terms and how they impact your buying experience is always recommended. While they are often a bit more expensive than traditional loans, these loans can also provide opportunities where large banks simply cannot.
Do you already own the property?
While this may seem like a strange question, residential property owners who already own their property outright can use a hard money mortgage to fund various things such as remodels or upgrades. Because only 70% of the property’s value is offered, and the loan is secured by the property itself, homeowners, regardless of their credit history, can take advantage of these secured loan types.
The interest rates seen with hard money lending terms tend to be higher than those found with large banks. However, this is to be expected, as these loans are relatively easy to get and do pose some risk for the capital investors themselves. But, when used properly, these loans have proven to continue to fuel the real estate recovery. Why should the marketplace grind to a halt just because banks refuse to lend?