What comes hits your mind when you hear the word ‘hard money?
Investors looking for alternative and less stringent financing, which happens outside the local bank, are used to the term ‘hard money. It’s the money a borrower takes out for investment without having to work with traditional lenders like credit unions, banks, or even mortgage agencies for those in real estate.
Ideally, the traditional lenders gauge you by your income and credit score but not hard money lending.
So what’s hard money? Hard money is money you borrow against tangible collateral as opposed to using a credit score. When you’ve got a dull credit score and want to close on a property quickly, hard money can be an exciting alternative.
Here are a few basics about hard money
The best way to understand how hard money works is through contrasting such with mortgage loans. Very few people have the petty cash to purchase a property outrightly. So you’re forced to take a loan from a credit union or a bank. You buy the property with the money they give you, and you repay the same in thirty years or so.
How do hard money loans work?
With hard money loans, the lenders don’t check your credit history. Instead, they will take collateral that is enough to cover the loan you’re taking. If you’ve challenges in repaying the hard money loan, they have the right to sell the collateral and recover their money. That’s why it’s called hard money- borrowed against tangible assets as opposed to credit score.
The collateral can be anything you own, like some property, your vehicles, some expensive jewelry, a savings account, and such.
The loans are appealing, especially to those with poor credit history. Lenders don’t perform extensive checks on credit history, and that’s why your loan can be approved in a matter of hours. So if you’ve been through bankruptcy or you defaulted on a loan in the past, this is your loan.
What are hard money loans used for?
Typically, you borrow hard money loans to buy property. Though traditional mortgage has been a stable option for these loans, hard money loans often come in handy.
Real Estate Investing
Everyday use for hard money is in real estate investing. That happens mostly when you want to buy a run-down house, fix it up then sell it for profit. Hard money loans become helpful here because they’re short-termed, and therefore you’ll be able to fix the property and trade and then repay the amount.
In Case Of a Cash-Bidding Battle
There may arise cases when a property is on offer and the time is so limited that you can’t go through the traditional intensive and time-consuming processes. That time, you can get the hard money loan which you use as a bridge loan to put down a competitive offer.
When You Have a Poor Credit History
In such a case, hard money is plausible to work around. You may be flush with tangible assets but with a lackluster borrowing history. It’s high-risk, yes, but you’ll clear it faster and have no loan burden to bother you.
Most people are listed negatively by credit bureaus, and that locks them from the traditional borrowers. You may have the ability to repay a loan, but it becomes problematic because of a low credit score. That’s why hard money loans have become popular. Look for a reputable investment hard money loans Greenville, sc agency, and ensure you are comfortable with the conditions before signing the contract.