Real estate investment can be a lucrative means to build one’s wealth. It’s also a great way to diversify one’s portfolio. With real investment trusts (REITs) and real estate crowdfunding, investors are able to invest passively. Some, however, may prefer to own properly directly. When it comes to real estate investments, most of us do not feel comfortable dealing with huge amounts of cash upfront to purchase property. This is where hard money loans Connecticut comes to the rescue. But first, what are hard money loans?
Hard Money Loan: What is It?
Hard money loans, or sometimes called as short-term bridge loan, is a type of loan normally secured when purchasing real property. One can usually apply for hard money loans from individuals private companies such as Hard Money Loans Connecticut , instead of banks.
Although hard money loans were once considered as the last resort for people in need of cash, they have recently grown in popularity, and there are now plenty of great deals and options you can explore as well.
Hard money loans usually require a collateral for the loan, which in most cases is property. Traditional banks, in contrast, decide on the following basis:
- The borrower’s creditworthiness
- The borrower’s financial history
- The borrower’s ability to repay
Acquiring a loan from a traditional bank can be a lengthy and tedious process, because the lender has to spend time investigating an individual as well as their credit history.
Hard money loans are more focused on the collateral. If a borrower is unable to pay, then the lender just takes the real estate as a form of repayment for the loan.
How Long Does It Take to Process a Hard Money Loan and How Long do They Last?
Hard money loans usually get approved and funded just days after submitting your application. Hard money loans usually have higher interest rates, which is why it makes sense to get one only if you’re planning to pay it off immediately.
Property flippers/home flippers mostly use hard money loans because they plan to renovate and put the property up for sale within a year. In a way, they use the real estate property as a means to finance the loan. In such cases, the high cost is offset by the fact that the borrower intends to pay the loan off right away.
Pros and Cons of Hard Money Loans
As with everything, there are pros and cons to hard money loans, and we will be discussing them below starting with the pros.
There are a number of good reasons as to why you should consider getting a hard money loan over a mortgage from the bank. Below are the benefits of this lending option:
- It’s convenient –applying for a mortgage is not only time-consuming, but it can also take months to close alone, which could put you at risk on losing out on a particular property investment. But with hard money loans Connecticut, you can get funding in just a matter of weeks! This is extremely important if you’re planning to fund a major development project.
- The terms are flexible –since hard money loans can be acquired from private lenders, investors have more room for negotiation when it comes to the loan terms. You can customize the repayment schedule according to your needs or qualify for reduction or elimination of certain fees, such as the origination fee, during the underwriting process.
- Collateral –when it comes to hard money loans, the property serves as the collateral for the loan. However, lenders can give investors a bit of leeway here. For instance, some lenders allow you to secure the loan by means of personal assets, like a retirement account or your own residential property.
While it is a convenient loan option, hard money loans do not provide the perfect financing solution. There are a couple of cons or drawbacks you should consider:
- The Cost –hard money loans may be convenient, but investors pay such a hefty price for this. Hard money loan rates can be up to 10% higher compared to a conventional loan. Investors are likely to pay more in origination fees, closing costs, and loan-servicing fees as well.
- Repayment Period is Shorter –hard money loans are meant for investors to get a property ready to go on the market as soon as possible. As a result, the repayment period is usually shorter compared to regular mortgage loans. When you choose a hard money lender, it’s important that you understand how soon the property will become profitable to make sure you can repay the loan on time.
When Should You Use Hard Money Laon for Real Estate?
Although hard money lenders often issue loans for almost any kind of property, there are some types of property investments that are really meant to be financed through hard money such as rehab projects, land loans, and construction loans.
This doesn’t mean that you can’t finance other types of investment projects through hard money. If you, as a property buyer, need to produce money quickly for a deal before it disappears, or you have credit issues, hard money loans can give you the speed and convenience you need.
To Sum it Up
Hard money loans are a great match for investors that need to get funding for an investment property right away, sans all the red tape and waiting that usually happens with bank financing. Pay attention to the fees, interest rates, and loan terms when choosing a hard money lender.
Understanding what hard money loan is for real estate acquisitions has become necessary in the housing sector. Hard money loans Connecticut offers investors an edge over traditional means of financing. Aside from being able to secure capital faster, sellers will also favor offers by money borrowers because they’re made with cash. In other words, if you’re looking to fund a deal quickly, you may want to consider hard money loans. It may just be that one thing that can help you get what you need.