If you’re interested in real estate investments, you’ve probably heard a lot about hard money loans—both pros and cons. Though these loans have been around for a long time, there are a lot of misconceptions around them, and it can be hard to figure out which information is accurate and which one is not. Keep reading to learn more about common misconceptions about hard money loans.
Hard Money Loans Are Risky
Hard money loans are often perceived as risky investments, but this is not necessarily true as long as you understand the terms and can meet the requirements of the lender. These loans can be a great way to finance a real estate investment or other projects if done correctly since they are typically short-term and are backed by collateral, such as real estate or other physical assets. This makes them a more secure form of financing than traditional loans.
Only Desperate Investors Opt for Hard Money Loans
While it is true that hard money loans are typically used by investors who are in a difficult financial situation, their use is not limited to just this type of borrower. In fact, there are many reasons why an investor may choose to pursue a hard money loan, including the fact that hard money loans offer more flexibility than traditional loans.
Hard Money Lenders Are Loan Sharks
Loan sharks are unlicensed lenders who charge exorbitant interest rates and fees and often resort to illegal activities to collect a debt. A hard money loan, while more expensive than a traditional loan, is not illegal, and the lender is subject to the same laws as any other lender.
In addition, hard money lenders are typically more transparent about their fees and interest rates than loan sharks. They are also more likely to work with borrowers who may not meet traditional lending requirements in order to provide them with the capital they need.
Hard Money Loans Have Difficult Terms and Conditions
While hard money loans can have stricter requirements and higher interest rates than traditional bank loans, the terms and conditions are not necessarily difficult to meet. In fact, hard money lenders are usually more flexible and willing to work with borrowers than traditional banks.
The loan terms and conditions are based on the collateral and the borrower’s ability to repay the loan. Hard money lenders will generally consider a variety of factors, such as credit score, income, and financial stability when evaluating a loan application. However, even if a borrower’s credit score is low, they may still be able to obtain a hard money loan if they have sufficient collateral or can demonstrate their ability to repay the loan.
For example, take a borrower who’s looking for a hard money loan to finance the purchase of a new property but has some liquidity issues. In this case, if they’re willing to make a large down payment and provide additional collateral to secure the loan, the hard money lender might be willing to negotiate a loan with a slightly longer repayment period and more flexible repayment terms.
Hard money loans are an incredibly useful form of financing, so it’s important to differentiate the facts from the misconceptions. If you’re considering a hard money loan, contact GW Private Capital, Inc. Private Hard Money Lenders to find out if it’s the right option for you.