What is a hard money loan?

A hard money loan is a short-term loan that is best used to flip an investment property rather than buy and hold, rent it out, or develop it.

While it is feasible to use a hard money loan to purchase a property and subsequently pay it off with a conventional loan, private money loan, or home equity loan, if you are not planning to flip your property, start with one of the other choices is more convenient and cost-effective.

The advantage of choosing a hard money loanto finance a property flip over a standard loan is that it may be easier to qualify for. While credit and income are still taken into account by lenders, the profitability of the property is a major consideration.

The home's estimated after-repair value (ARV) is used to establish whether or not you can repay the loan. Furthermore, instead of waiting weeks or months for a standard mortgage closing, you can have loan money in only a few days.

The most significant disadvantage of taking out a fix-and-flip hard money loan is the cost. Depending on the lender, the interest rate on this type of loan can be as high as 18%, and the repayment period may be short. Hard money loans with maturities of less than a year are not unusual. In addition, compared to traditional finance, origination fees, and closing costs may be greater, reducing returns.

In general, use hard money with caution, ensuring that you have various exit strategies in place before taking out a loan.

Find more:

https://realiff.com/post/oHBHRNZjPZEQ/what-are-commercial-loans

https://realiff.com/post/14PUIe3aHXsq/financing-an-investment-property

 

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