What Are the Different Types of Hard Money Loans?

by | Dec 15, 2021

Hard money loans are an excellent option for people who might not have the best credit scores but still want to get their hands on some cash. Traditional lenders depend primarily upon a person’s ability to pay back the money they borrow with interest rates that can be pretty high (in some cases, more than 10%!). Your Houston hard-money lender won’t care how much debt you carry as long as you eventually improve your financial situation.

The best way to understand hard money loans is to see them as financing that provides immediate access to funds. They are perfect for investments, such as fixing and flipping properties. 

There are four main types of hard money loans: transactional, bridge, rental and commercial. Each type of loan has its own distinct set of benefits.

Transactional Hard Money Loans

Transactional hard money loans are typically short-term loans to finance the purchase of a property. They work best for investors looking to buy, fix, and sell a property quickly. 

This type of loan is based on the property’s after-repair value, so the lender is taking on more risk than with a traditional loan. They are often easier to qualify for because the borrower does not need to have a high credit score or a lot of equity in the property.

Benefits of Transactional Hard Money Loans

1. Fast Approvals: Borrowers can typically get their hands on the cash in as little as 24 hours. 

2. Easy to qualify: As long as the borrower has a solid plan for how they will use the loan and pay it back quickly, most hard money lenders will be happy to provide the funds.

3. Lower Interest rates: Other types of loans are designed for borrowers who will pay them back quickly with higher interest rates. These loans typically offer lower interest rates. 

Bridge Hard Money Loans

Bridge hard money loans are another popular option for borrowers looking for fast access to cash. Bridge loans are popular because they allow you to complete the sale and purchase process without waiting for your existing home to sell.

These loans are based on the property’s value, so the lender is taking on less risk than a transactional loan. However, these loans may have higher interest rates and fees because the borrower takes on more risk.

Benefits of Bridge Loans

1. Flexibility: Bridge loans offer borrowers a lot of flexibility. Borrowers can use the loan to finance the purchase of their new home and have up to 12 months to sell their current home.

2. Fast approval: Bridge loans are typically not subject to the same stringent underwriting guidelines.

3. Faster closing: Bridge loans can close in as little as two weeks, compared to the 30-45 days it takes to close on a traditional loan.

Rental Hard Money Loans

When you’re first starting as a developer, estimating the cost of renovating your building can be challenging. A rental loan is ideal for individuals who want quick access and flexibility if they need emergency funds or other resources while investing in their project- especially if there’s an issue with code compliance!

When renovating an old building can cost more than expected due to unexpected expenses or Gallery Visitations (which we all know is a real risk), this flexible funding allows you to spend on what’s essential without wasting your valuable time.

Benefits of Rental Loans

1. The interest-only option: You only need to make payments on the loan’s interest for a set period, giving you some breathing room as you get your project off the ground.

2. Fast funding: Rental hard money loans can be funded in as little as five days.

3. No prepayment penalty: You can do so without any penalties if you want to pay off your loan early.

Commercial Hard Money Loans

Commercial loans can help finance the purchase or renovation of a commercial property. These loans have a shorter term than traditional bank loans and have higher interest rates. 

Benefits of Commercial Hard Money Loans

  1. Higher loan amounts: Commercial hard money loans typically have higher limits than residential loans. This means that you can finance a larger project with a commercial loan.
  2. Versatile: Whether you need funds to remodel an office space or renovate a retail store, a commercial hard money loan can help.
  3. Better Loan To Value (LTV): Commercial hard money loans typically have a higher LTV ratio than residential loans. So, you can borrow more money against the value of your property.

Determine the Type of Hard Money Loan You’ll Need in Houston, Texas!

When you’re looking for a hard money loan in Houston, Texas, it’s important to choose the right type of loan for your needs. 

At Quick Lending, we offer a variety of hard money loan programs to suit the needs of our borrowers. We offer transactional, bridge, and rental loans and a variety of other specialty loan programs. If you’re not sure about the type of loan for you, contact us today. Our team of experienced private lenders can help you find the perfect option for your situation.