When it comes to securing financing for a real estate investment, borrowers have two main options: a conventional loan or a hard money loan. While both types of loans have their advantages and disadvantages, there are several compelling reasons why you should choose a hard money loan over a conventional loan.
Why choose a hard money loan?
- Faster Approval Process
One of the main advantages of a hard money loan is that the approval process is much faster than a conventional loan. This is because the underwriting criteria for a hard money loan is less strict. A hard money lender is primarily concerned with the value of the property being used as collateral, and less concerned with the borrower’s credit history or income. This means that borrowers can receive approval for a hard money loan in as little as a few days, whereas a conventional loan can take several weeks or even months.
- Flexibility
Hard money lenders are often more flexible than conventional lenders when it comes to the terms of the loan. This is because hard money loans are typically tailored to meet the needs of the individual borrower. For example, a hard money lender may be willing to provide a loan with a longer repayment period or a lower interest rate than a conventional lender, depending on the borrower’s needs.
- Credit History is not a Deal Breaker
Another advantage of a hard money loan is that the borrower’s credit history is not the most important factor in determining whether they qualify for the loan. While conventional lenders often require borrowers to have a high credit score, a hard money lender is more concerned with the value of the property being used as collateral. This means that borrowers with poor credit scores may still be able to qualify for a hard money loan.
- Less Documentation
Obtaining a conventional loan typically requires a significant amount of documentation, including proof of income, tax returns, and bank statements. This process can be time-consuming and frustrating for borrowers. In contrast, hard money lenders typically require less documentation. This means that borrowers can receive financing more quickly and with less hassle.
- Availability
In some cases, conventional lenders may not be willing to finance certain types of real estate investments. For example, if a property is in a state of disrepair or if it is located in a high-risk area, a conventional lender may not be willing to provide financing. In contrast, hard money lenders are often more willing to take on these types of investments. This means that borrowers may be able to secure financing for investments that would not be possible with a conventional loan.
In conclusion, while a conventional loan may be a good option for some borrowers, there are several compelling reasons to choose a hard money loan for real estate investments. From a faster approval process and greater flexibility to the ability to obtain financing for unconventional investments, a hard money loan may be the right choice for many borrowers.
