Benefits of Borrowing from Hard Money Lenders

Borrowing from hard money lenders brings a bunch of benefits to real estate wholesalers. This is why despite the high interest, investors still opt to use such kind of financing. Before we list down the basket of benefits of using hard money financing, let us first identify some disadvantages.

Hard money lenders, who are also known as private lenders, usually use interest rates that are twice as high compared to traditional lending institutions. This is their way of ensuring the survival of their business. Private lenders grant credit even to those who have poor credit scores, making them more susceptible to loan defaults. They lose a lot of money when this happens and the only way they can keep operating is by using a high interest.

An 18% interest rate is just common across the country. This rate usually comprises 13% actual interest rate and a 5% origination fee. Some lenders use a points system wherein one point is equal to one percentage point of the loan.

Apart from the high interest rate, borrowers usually have no qualms on using this kind of financing. After all, you can’t have everything you want. It’s the consequence of the benefits you’ll get:

Hard money loans are processed fast. While banks and other traditional lending institutions take weeks to process applications, private lenders can release money in just days. This swift processing allows investors to buy a property they want flip immediately, beat competition, and save an opportunity to profit.

There are several factors why these loans are approved or rejected fast. One factor is the assessment of borrowers. As mentioned, hard money lenders hardly care about your credit score or credit report. They will not scrutinize your current income and other assets. What they want to know is whether the real estate investing project you want to undertake using their money is profitable.

In the case of a rehabbing project, the lender will check whether the property you plan to rehab will sell for a higher value after you make repairs. This is a benefit for a borrower as he does not have to secure too many documents and reports, saving him time, effort, and money.

Another benefit is that hard money financing may fund 100% of an investment project. In the case of a rehabbing project, if the price of the house and the repair costs fall within the 70% of the after repair value, then all your expenses will be shouldered by the loan. If you borrowed from other sources, they will only give you enough money to purchase the property. You have to fund the repairs using your personal money.

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