When it comes to financing, there are various types of loans available. Two of the most common ones are regular loans and hard money loans. While they may initially seem similar, there are crucial differences between the two that borrowers need to understand.
In this blog, we’ll break down the differences between a regular loan and a hard money loan so that you can decide which one is right for you.
What Is a Regular Loan?
A regular loan, or a traditional loan, is the type most people are familiar with. Banks and financial institutions offer these loans, typically secured or unsecured. Secured loans need collateral, such as a house or a car, while unsecured loans do not require collateral.
What Is a Hard Money Loan?
A hard money loan is a loan secured by real estate. Private lenders or investors offer these loans, which are typically short-term. These loans have higher interest rates than traditional ones, requiring less paperwork to apply for.
Difference Between Regular Loans and Hard Money Loans
Some of the differences between the two types of loans include the following:
Interest Rates
The interest rate is among the most significant differences between regular and hard-money loans. Traditional loans typically have lower interest rates than hard money loans because they are less risky for lenders. Regular loans are based on the borrower’s creditworthiness and ability to repay the loan, while hard money loans depend on the value of the property. The former have fixed or variable interest rates, which the lender determines.
Repayment terms
Another difference between traditional loans and hard-money loans is the repayment term. Regular loans have longer repayment terms than hard money loans, which are usually short-term ones. Hard-money loans are the ones that should be repaid in as little as a year or two. The former has a longer repayment term than the latter, which generally takes longer to process.
Credit Score and Income Requirements
To qualify for a regular loan, borrowers must have a good credit score and a steady income. Lenders evaluate borrowers based on their creditworthiness and ability to repay the loan. In contrast, hard money lenders assess borrowers based on the property’s value. Credit score and income are less critical factors for hard-money loans.
Collateral Requirements
Unlike traditional loans, the collateral for a hard money loan is the property itself. The lender evaluates the property’s value and offers a loan based on that value. The borrower must have equity in the property to qualify for a hard money loan.
Application Process
The application process for a regular loan is usually more extensive than that for a hard-money loan. Traditional loans require a lot of paperwork, including tax returns, bank statements, and employment verification. Hard money loans, on the other hand, require less paperwork. The lender evaluates the property’s value, and if the borrower has equity in the property, they can get approved quickly.
If you need financing for your real estate investment project, look no further than GW Private Capital, Inc. Our experienced team of professionals specializes in providing hard money loans tailored to your unique needs. Contact us today to learn more about how we can help you achieve your investment goals!
