Why Pick Hard Money Loans over Conventional Lending?

by | Jul 29, 2022

At first glance, hard money loans would seem to offer few advantages in comparison to conventional lending. The interest rates run substantially higher than traditional mortgages, and the payback periods are counted in months rather than the 30-year term we are all used to.

But hard money loans serve a legitimate and important function for real estate investing. Sometimes investors need cash fast to capitalize on short-term opportunities that won’t stay on the market for the 30 to 45 days it takes to close a traditional mortgage loan.

Why should you pick hard-money loans over traditional lending? The specialists at Quick Lending have put together this guide to help answer that question, along with a few tips on what to watch out for as you explore whether hard money loans are the right choice for you.

Faster Funding

Hard-money loans travel a shorter path to closing than traditional mortgages. With a traditional mortgage, lenders are required to ensure you have the appropriate personal financial resources and creditworthiness to pay back the loan. This is a document-intensive task where you and the banks work on completing various verifications.

In contrast, hard-money loans are secured by the target property for purchase. Lenders only need to verify the market potential for the property to make sure it’s enough to cover the cost of the loan. Because the variables are fewer, the process is streamlined and you can expect to get your money in days versus a month or longer.

Flexible Terms

Conventional mortgage lenders such as banks operate under strict Federal Housing Authority (FHA) regulatory requirements. Many houses coveted as “fixer-uppers” cannot meet the FHA requirements so, therefore, cannot qualify for conventional mortgages backed by the Fannie Mae and Freddie Mac agencies.

Hard money lenders work outside that system since they are providing their own funds to prospective investors. They have more freedom to set the terms that work best for them and their business models — and also to adapt to your needs as an investor. Generally speaking, hard-money loans require a payback anywhere between six and 18 months, or even longer. The exact payback period can change from project to project.

Some lenders will approve interest-only repayments until the house is sold. And, many lenders also waive penalties for early repayment, so you as an investor can react to changes in the market and in cash flow to pay off a loan early, perhaps saving tens of thousands of dollars.

Streamlined Approvals

Hard-money borrowers do not have to undergo the same type of extensive review of their financial, employment, and credit histories as they would in a conventional loan. That’s because hard-money loans rely on the estimated market value of the property that an investor wishes to purchase. Lenders get their money back from the sale of the home rather than the buyer’s current wages over a long period. If something happens during the life of the loan and the borrower cannot repay, then the lender would seek to foreclose on the property.

The approval process is also designed around the mindset of a real estate investor. With a conventional loan, many buyers will seek to get pre-qualified for a certain amount and then search the market for a home that fits under that ceiling. In a hard-money loan, you can identify the targeted property or properties and then apply. The total amount of the loan will be based on the estimated market value of the redeveloped home.

Strategically Appealing

Real estate investors may have multiple target properties in their portfolios at any particular time. Hard money loans allow investors to think strategically in how they structure their portfolio properties to generate a return. Some might require more work, causing the need for a longer loan period. Others may be quick fix-and-flips and require only a shorter maturity period. The flexibility inherent in hard-loan lending gives investors many levers they can pull to ensure the best possible financial outcomes.

At Quick Lending, serving the Houston areas and other parts of central Texas, we focus on providing the capital you need for real estate and other investment projects. Our diverse and experienced team will guide you through the loan process every step of the way with accurate and unbiased information.

We offer bridge, transitional, rental, commercial, and owner-financed loans that can align with your investment strategy. Call us or contact us online today about your hard-money loan needs. Our experienced loan specialists are ready to work with you. We have a four-step process, and in some instances you can get your money in a matter of days.