Get quick access to fast, reliable loans to seize time-bound opportunities or survive unexpected emergencies with hard money loans. Despite traditional loans offering investors longer repayment schedules at lower interest rates, they’re often slower and have good credit requirements that could exclude investors with a murky financial history. If you’re seeking to quickly upgrade your bedroom furniture or make other minor cosmetic changes before flipping your property and putting it on the market during a seller’s season, then you need access to faster financial solutions. That’s why we’ve put together this article to provide a guide on how hard money loans can help you overcome financial distress:
What is a Hard Money Loan?
Picture this, you’re knee-deep in debt and decide to apply for a bank loan to refinance your property and avoid a foreclosure. Unfortunately, because your credit score is too low or you’re between jobs, the bank denies your application and you lose your property a few weeks later. Thus, if you’re looking for a short-term loan with a quick approval timeline, hard money loans should be an option to consider. Unlike conventional loans, they are backed by your property’s value rather than your creditworthiness, which could be a saving grace in times of financial distress. Maryland Hard Money Lenders reminds applicants to take note of higher interest rates compared to traditional bank loans. Otherwise, hard money loans provide an excellent short-term solution to your financial woes.
Main Risks Associated with Hard Money Loans
-
High Interest Rates
Prepare to pay more for financing in the long run when you opt for a hard money loan. Despite their quick approval timeline and willingness to take on distressed properties, hard money lenders often require borrowers to compensate them for the risk with higher interest rates. In other words, besides using your property as collateral, you also have to pay more for the money you borrow. That could be another source of financial distress if you don’t manage it well.
-
Short Repayment Terms
Create a solid exit strategy to refinance or pay off your loans within the agreed timeline to avoid defaulting. Hard money loans are short-term loans usually lasting 6 – 18 months. Thus, this condition can put pressure on borrowers to repay the loan quickly or face hefty penalties or even foreclosure.
Flexible Uses of Hard Money Loans
Preventing Foreclosure
Avoid losing your investment by opting for a hard money loan when times are tight. Before other lenders put a foreclosure notice on your existing property, consider refinancing your debt with a hard money loan. Unlike traditional options that take much longer to process during a period where time is of the essence, hard money loans give you an alternative quick solution to your financial woes. Hard money loans can act as a crucial financial cushion when something threatens your usual cash flow such as months of vacancy or a rapid increase in your operating expenses.
Financing a Renovation
Use rehab loans if you happen to find a property that needs repairs before selling it for profit. With fix-and-flip properties, investors often have to race against the clock to secure the property, renovate it, and put it back on the market at a reasonable time to make a profit. However, raising the necessary funds to finance your renovation can be difficult, especially if the property is in major disrepair. Not only could it dissuade traditional lenders from giving you approval, but they may also not be willing to grant enough funding to cover the total costs. On the other hand, hard money lenders are more open to risks, as long as your property’s value is high enough.
Bridge Financing
Give yourself room to breathe between financial transactions by opting for a hard money loan. If you’re looking to purchase a new property before selling an existing one, you may need an inflow of cash to keep up with both mortgages conveniently. After all, the last thing you want is to put a down payment on a house while your existing property shows no signs of sale. Thus, a hard money loan can act as a bridge between the purchase of your new property and the sale of the old one. Besides, you could also use it to simply cover short-term expenses while you wait for long-term financing approval.
Conclusion
Save yourself from unnecessary financial distress by opting for a hard money loan. Aside from having a fast approval process, their flexible requirements and negotiable terms make them an excellent solution for investors in hard times. As long as you account for their high interest rates and short repayment timelines that can make them more expensive than conventional loans in the long run.
Once you’re able to live with those conditions, you could use it as an option to prevent foreclosure on your property. Also, a hard money loan could provide the necessary funding to finance a renovation of your new property or act as bridge financing to cover short-term expenses.
