Hard money loans, also known as bridge loans, are asset-based loan programs for real estate investors that use property as collateral. They are generally more straightforward and quicker than other financing options, probably because hard money loan lenders are usually companies or private individuals rather than banks.
Hard money loans are easily a real estate investor’s best friend provided they are aware of how to use them efficiently. That said, it’s very important that you know what to look out for if you’re in the market for a hard money loan.
Here is a list of five factors you should look into if you’re considering taking up this Asset Based Lending approach.
1. Fast Processing Timelines
You need to consider how fast you need the funding. Hard money lenders generally process your loans more quickly than traditional banks; however, individual lenders operate with different timeframes.
Most lenders can process your loan within 7-14 business days. Nonetheless, you’ll find others that can even process the loan in just five days. Knowing how soon you require the money should determine your choice.
2. Does The Firm Specialize on Hard Money Loans
Many people make the mistake of assuming private lenders are the same as hard money lenders. The truth is hard money loans specifically need the expertise of a specialist in hard money to ensure all the origination, servicing, and all other necessary details are correctly completed.
While hard money loans may seem simple at first, the loans are complex and require a certain procedure to ensure that the lending process is well facilitated.
3. Work With a Local Lender Service
Hard money lenders are interested in the value of your property since the asset serves as their collateral in case of default. Therefore, you can expect them to evaluate the asset before issuing the loan. Consider working with a local lender to ease the inspection process as well as ensure that you enjoy a personalized customer experience
4. Broker Vs. Lender – Know Your Options
Not all hard money investment lenders are the same. Some brokers front as lenders then take your information and seek an actual lender to get you the money needed. While it’s not wrong to have a broker lending system, not every investor is looking to work with a broker. Consider the lender you want and choose accordingly.
5. Insist and Choose Transparency
Never sign paperwork or contracts that you have not read and understood fully. Not all complex money lenders don’t follow standard business practices. Such organizations could compel you into getting into an unfavorable deal by prompting teaser rates.
Ensure that you insist on transparency at every single stage of your process so you make a well-informed decision.
Asset Based Lending Is Much Easier Than You Think
Hard money loans are often preferred amongst real estate investors due to their fast turnaround time. However, not all investment lenders are similar; follow our tips to avoid getting led into a bad deal and help you choose the best hard money lender. Do your background research on the company you select and conduct due diligence before signing off any agreement.
