Are Hard Money Loans For You?

There are a number of reasons why a borrower would consider hard money lenders over the loans issued by traditional banks. Hard money lending has grown in recent years due to versatility and ease of acceptance, though there are drawbacks that those considering their implementation may want to consider. In both cases, careful consideration is required before moving in one direction or the other, and because the details of a specific situation are critical in the decision-making process, understanding the benefits and drawbacks will help you make the right decision.

A Borrower may want to consider hard money loans as a saving grace when in particular financial situations. The self-employed, for example, may have a difficult time documenting and forecasting income. The Los Angeles hard loans market is a shining example of this scenario.

It can be tough to determine the salary of a commissioned salesman for the coming year, especially when the actual salary particulars are much different from the reported income. In this situation, large banks will pass on the loan, while hard money lenders only need the confidence of a good return to proceed. Using our previous example, the volatility in large markets can fuel city wide changes, much in the way the Los Angeles hard money loans industry has changed the landscape of the region.

As with all hard money lenders, groups are interested in a good, if not great, rate of return. Consequently bad credit will likely disqualify the individual from the loan. However, hard money lenders are more concerned with their position on the note than the borrower’s credit score.

Many hard money investors use the funds for the renovation of existing homes. Traditional lenders will not fund places considered as non-livable. A good example is a client seeking funding for a “flip”. The toilets have been ripped out, making the home non-livable. This leaves the hard money lender as the sole source for financing. For the Borrower, hard money loans are the only remaining option.

When borrowing, time is of the essence, so the streamlined decision-making process is a definite lure for hard money lenders. Projects can be started and completed in a timely manner since fewer regulations and layers exist within the organization.

Hard money lending also contains a number of items which may make consumers consider hard money worse than traditional financing. The two major sticking points are the points and rate charged. Points, or the money charged just to loan the money, can be three to four points higher than a bank. The same can be stated for the interest rates.

The good news is that while the interest rate may be high, the payment terms are generally short – this may vary with commercial hard money. So, while the rate may make the hard money expensive, the shortened term and simplified process make it alluring.
The best aspect of hard money loans is the ability to shape it to suit the needs of the Borrowers and Lenders. All aspects of the loan are negotiable which leads to customized solution.