5 Biggest Myths About Hard Money Loans
Being a Hard Money Broker for over 25 years here in Sonoma County but licensed for the entire state of California, time and time again I hear such myths or questions similar to these.
This should hopefully dispel any last vestige of concern or uncertainty about the value and use of hard money in real estate. Be it to buy your own home or a 2nd home, a flip, an investment property, land to build on, etc. – hard money can be the best choice for you.
The myths so aptly covered in Trust Deed Capital BLOG, by Ken Meyer on July 21, get cleared up by providing the facts:
Myth #5: Only the Desperate Seek Out Hard Money Loans
One of the most difficult myths to dispel is that anyone who goes outside the traditional lending structure (banks, for the most part) must be desperate for a loan. This is the furthest thing from the truth, since most of the people who seek out hard money loans are smart business people who would rather work with an individual investor on a project than deal with a huge lending institution.
Myth #4: Hard Money Lenders Are All Loan Sharks
Hard money lenders are business people, just like their clients. A hard money lender provides money based on the investment, rather than based on the person’s credit score, which means that the lender’s eye is on making the investment succeed. Fairness and good business sense means you get return business. Setting impossible, harsh terms on the other hand means that people won’t come to you unless they’re desperate, which is something hard money lenders want to avoid at all costs.
Myth #3: Hard Money Loans Are More Expensive Than Traditional Ones
You get what you pay for when it comes to financing. If you need to get money in the next two days so you can acquire and flip a property for a huge profit, then time is of the essence. If a traditional lender can’t get you the money in the time frame you need, then it simply isn’t a valid option.
Hard money loans provide flexibility, but their costs are also affected by the loan in question, the profit to be made, and the laws of supply and demand. All of that said, the interest rate on a hard money loan can sometimes be higher than a traditional loan, but they are also usually shorter term and can close quickly. Time is money in investment real estate, so when you look at the big picture, a hard money loan is usually more cost effective than a traditional loan.
Myth #2: Hard Money Loans Have Draconian Rules
Hard money loans are given by an individual, which means that the rules will change from one lender to another. Generally speaking, hard money loans have different restrictions put on them than consumer loans. This is for a specific reason; the lender is looking out for the investment. Lenders and borrowers are encouraged to negotiate until they reach terms they feel they can work under, which is often not the case for banks and other traditional lenders.
Myth #1: It’s One or the Other
Perhaps the biggest myth when it comes to hard money loans is that you can’t also have soft money loans (the more typical sort you get from the bank). There are no rules that say this, and often those who need as much financing as they can get will draw from multiple sources to make sure they have enough capital to get the project done.
Original Trust Deed Capital Blog link: http://www.trustdeedcapital.com/blog/5-biggest-myths-about-hard-money-loans?success=true
This same blog comments on how scary hard money can seem to be, but this only comes about because of the lack of understanding and knowledge required to properly invest with or borrower hard money.
I hope that if you or someone you know that is having trouble getting a loan elsewhere, has a time sensitive purchase requiring financing, etc. that you honestly check out hard money as an option. You may well be very glad that you did!
Best, Forest – The Guy in the White Hat
Hard Money Broker Serving all of CA Since 1988!
Sun Pacific Mortgage & Real Estate, Family owned & operated (707)523-2099.
www.Sunpacmortgage.com; CA Bur of Real Estate license #01009559 and NMLS #299456