Comparing the Pluses and Minuses of Hard Money Loans

Hard money loans are an alternative form of lending that many people are unaware of. With hard money loans, you work with a private lender to get the money that you need. Hard money loans can be used for a variety of different applications. However, they are all going to be similar in the way that they are executed. If you need a way to get money quickly and the bank is not willing to work with you, the hard money market might be where you need to look. Here are a few pluses and minuses of hard money loans.

Pluses of Hard Money Loans

• Get money quickly--When you apply for a hard money loan, the application process is going to be much quicker than normal. Instead of taking weeks with a traditional lender, you could have the money that you need within a few days. Depending on your situation, this could be a major benefit. 
• Easier application process--When you deal in the hard money market, you are going to be dealing with an individual lender. These private lenders do not use the same underwriting process that you usually go through with a bank. They will evaluate every loan application differently and make the decision based on their personal opinion of it. Therefore, even if you have bad credit, you may be able to get your hands on a hard money loan. They tend to put more emphasis on the property that is being bought with the loan instead of the lender. 
• Flexible terms--When you get a hard money loan, you will often be presented with flexible loan repayment terms. For example, you may be able to get by with paying interest only each month while times are tough. This will make it much easier on you in the long run instead of making a large payment every month. 

Minuses of Hard Money Loans

• High interest rates--The biggest drawback of using hard money loans is the interest rates that the lenders charge. Hard money lenders are notorious for charging interest amounts that are far higher than a regular loan. 
• Low loan-to-value ratios--The loan-to-value ratio is how they determine exactly how much money you are going to get. For example, with a loan-to-value ratio of 80%, the lender will give you $80,000 for a $100,000 piece of property. Hard money lenders will sometimes provide you with only a 60% or 70% loan-to-value ratio. This means that you may have to come up with a big part of the money from somewhere else. 
• Hard to locate--Hard money lenders can be difficult to find depending on where you live. Even if you find the website of a hard money lender online, they may not be able to lend you money in your state. Hard money lenders are only licensed in the states in which they do business. Therefore, they cannot lend to everyone.