Hard Money Loans: What Type Is Right for You?

A hard money loan is a type of loan that’s financed based on the borrower’s assets. With this type of loan, the borrower is expected to show the tangible property as collateral before they are given the loan. Hard money loans usually involve real estate investments. They are short-term loans, best suited for people who need cash urgently.

How Are Hard Money Loans Different From Traditional Loans?

Hard money loans are different from traditional loans in several ways. For instance, while a person may be able to repay a traditional loan in as many as thirty years, hard money loans typically have a repayment plan of about 3 years or less. 

There are several benefits of a hard money loan that may make borrowers prefer it to traditional loans. For instance, even if you do not have a very good credit score, you may still qualify for a hard money loan, experts say. While traditional lenders depend largely on a person’s credit score to approve their loan applications, hard money lenders may not be so particular about credit scores.

Types Of Hard Money Loans

Hard money loans come with different kinds of financing options, some of which include:

1. Transactional Loans

This type of loan offers short-term capital to investors. They are a quick and easy alternative to traditional loans. The entire process of getting a transactional loan is fast, making it possible for investors to get a loan in as little as one business day. These loans are designed to provide investors with short-term capital so they can quickly close deals. 

What Kind Of Investors Need Transactional Loans?

Transactional loans are certainly not the best kind of loans for every situation, however, there are situations for which these types of loans are the best. These loans are most ideal for investors who have found buyers willing to pay a lot higher for a property than its price. In this type of situation, an investor could purchase the property using a transactional loan and then sell it to the buyer. The investor would then pay off the loan using the proceeds from the sale and keep the difference as profit. These types of transactions are done very quickly.

Benefits Of Transactional loans

Transactional loans can benefit an investor in several ways, some of which include:

  • With this type of loan, the borrower gets approved based on the contract at hand and not based on their credit score.
  • Transactional loans enable an investor to close on a property without having to earn the capital themselves.
  • Being able to bring 100% of the cash in a day’s notice gives an investor an edge over other interested buyers.
  • This loan allows investors to finalize business deals very quickly.
  • It gives investors enough financial backing to close multiple deals at the same time or in little time.

2. Bridge Loans

As the name implies, bridge loans are given to investors to bridge a period between two transactions, such as transactions involving buying a property and selling off the same property. The bridging industry has evolved immensely in the past decade. Today bridge loans are taken by businesses and individuals who need quick approval for real estate financing. When managed wisely, bridge loans can help investors create a lot of profit in very little time. It takes about a week to process this type of loan

What Kind Of Investors Need Bridge Loans

Many investors benefit immensely from bridge loans. Whether for managing rental properties, or fixing and flipping, bridge loans come in very handy. House flipping is growing increasingly popular as a great investment, as it yields good returns on investment; this has made bridge loans even more popular. 

Advantages Of Bridge Loans

These are a few reasons why you should choose bridge loans over other types of loans.

  • Unlike traditional loans, bridge loans are approved very quickly and you won’t have to wait up to two weeks to get one.
  • Bridge loans have repayment plans that are easy to keep up with. This loan offers you the option to pay just the interests until you have made a profit on your investment to pay off the capital.
  • It’s easier to qualify for a bridge loan, compared to traditional loans.

3. Rental Loan

This type of loan is available for people looking to buy real estate for rent. Rental loans are typically tailored to the unique needs of each investor whether veteran or a newcomer to the industry. 

What Kind Of Investors Need Rental Loans

This loan is best suited for people looking to jump into the highly lucrative business of buying properties for rent. This type of investment needs a lot of capital both for the purchase and rehabilitation of properties and rental loans are a great way to get this capital.

Benefits Of Rental Loans

  • These loans are processed quicker than traditional loans
  • They are flexible and have the option of long-term financing
  • Thanks to their quick processing times, investors can complete their projects quickly and start to make a profit in no time.

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