When you find a good deal on the perfect piece of real estate, especially if you’re in the fix-and-flip business, you need financing fast to purchase the property. “Hard money” was a term first coined in the 1950s, and it refers to a loan made based upon property assets instead of credit. Private money loans specifically are loans made by a private entity instead of a corporate bank, but they function in the same way as a hard money loan, making the two terms practically synonymous.
There are several advantages to relying on private money lenders for real estate. To find out how you can benefit from private loans, keep reading.
Get Funding Fast
When it comes to traditional bank loans, getting your funds can take weeks or months. Private Money Loans can be funded in days.
If you’ve applied for a bank loan of any kind before, you’re painfully familiar with the mounds of paperwork you’re forced to read and sign. This process is tedious, boring, and time-consuming. But that’s not all — having to sign your name to so many agreements is risky.
Paperwork slows things down, and private money lenders know this. When you apply for a private money loan, the paperwork is usually minimal, with an emphasis on clarity, efficiency, and transparency. That means fewer pieces of paper to read and sign, and maybe even fewer restrictions you have to agree to for the loan.
Enjoy Flexible Terms of Agreements
As you can see, corporate banks are slow and cumbersome. Unless you’re working with a family-owned, business-oriented local bank, they probably aren’t really interested in helping you get your real estate business off the ground. Even if you’ve found the best bank in your area, chances are they’ll still have rigid guidelines and a slow, “one size fits all” mentality.
With private money loans, this is not the case. Private lenders are typically much more flexible than traditional banks in what they’re willing to fund or agree to. This is important in the real estate business, where every property is unique and different in its own way. This makes flexible loan agreements a necessity for fast, effective real estate investing.
Private Money Loans Have Relaxed Credit Requirements
Most private money lenders do not require a minimum credit score, where banks and traditional lenders are very particular about borrower credit.
Minimal Income Documentation
Banks and traditional lenders have fairly strict income documentation and typically require two years of federal income taxes, 3 months or more bank statements and two months paystubs. If the adjusted gross income stated on the 1040’s do not reflect enough money and the debt to income ratios are not within the guideline tolerances, the loan will easily be declined or reduced. Private money loans do not require very much income documentation and most private money loans do not consider debt to income ratios. Private money lenders make the majority of their lending decisions looking at the equity in the property and at common sense factors and circumstances, unlike banks.
Pay No Hidden Fees
Any time you borrow money from a big bank and sign piles of paperwork, you have no clear idea what fees are hidden in all of those pages. Usually, a bank official will casually slide documents over to you to sign, vaguely and briefly explaining what each one means. But once you leave your signature on a document, you’ve just committed to paying whatever fees and dealing with whatever restrictions the bank decided to place in the fine print.
With a reputable private lender, on the other hand, there are no hidden fees. All costs, requirements, and restrictions are laid out in plain view for you to see. This is all part of the process of providing useful, efficient loans to serious property investors.
As you can see, there are many reasons why you would want to choose hard or private money loans over a traditional bank loan. It’s not just because private loans are fast and convenient. It’s also because private lenders seem to take themselves and their borrowers more seriously than banks might, resulting in a better business experience for everyone.