The
term “Hard Money” refers to a type of loan that is backed by hard assets such
as real estate. A hard money loan is ideal for real estate investment. These
are also referred to as asset-based loans or short-term bridge loans. Traditional
financial institutions do not offer hard money loans. Private investors or
individual lenders are the typical sources of hard money investment.
A
real estate investment requires an immediate arrangement of funds for funding
such investing activities. However, most traditional methods of loan
application entail a lengthy procedure because of which such profitable
business propositions might get out of hand. This creates the need to take hard
money loans San Antonio. These loans require minimal paperwork and the least
time for getting the application approved. Since these are based on assets, the
credit score or the creditworthiness of the borrower is not taken into
consideration.
The
basic difference between hard money and soft money loans
There
are numerous differences between hard money and soft money. In a financial
context, hard money loans are based on assets. The borrower receives funds that
are secured by real property. Private investors are the key sources for hard
money loans.
On
the other hand, a soft money loan is an asset-based form of financing that
possess below-average interest rates and are easy to acquire. Both hard money
loans and soft money loans are based on assets but hard money loans are more
difficult to acquire than soft money loans.
Benefits
of taking Hard Money Loans
Hard money loans San Antonio holds
several benefits over the conventional loan application process.
·
Quick
One
of the key advantages of hard money loans is the speed at which the loan gets
approved and the fund gets transferred. These loans only consider the property
as collateral for repayment of the same. The funds get transferred within a
couple of days as compared to weeks or even months for conventional forms of
loans.
·
Fewer Requirements
When
compared to traditional bank loans, hard money loans have fewer requirements. The
borrower has to provide minimal paperwork for the loan to get approved. The
real estate provided as collateral is the primary consideration instead of the
creditworthiness of the borrower.
·
Provide funding that cannot be financed
elsewhere
Hard
money lenders finance projects that conventional lenders like banks and other
financial institutions have no interest in financing. Conventional lenders are
required to follow certain laid-down rules and regulations before approving a
loan application. However, hard money lenders are known to finance projects
beyond the conventional framework.
A
few cons to remember
While
speed, flexibility, and low requirements ensure that real estate investors will
get instant funding there are a few drawbacks of hard money loans. These are as
follows –
·
Higher Interest Rates
The
interest rates for hard money loans are more than that of conventional bank
loans. The higher the degree of risk, the higher will be the rate of interest.
·
Short Term Use
The
hard money loans are primarily meant for short-term use. The longer the period
of the hard money loan, the higher the risk that has to be taken by the lender as
the rate of interest on lending keeps on changing.
The
Bottom Line
So, the next time you are planning to fund your real
estate investment with hard money loans, make sure to weigh the pros and cons
before deciding to apply for the same.
