Hard money loans have a bad reputation of hidden interest rates that are high and a complex lending process. It seems today the ill-framed perceptions of hard money lending are fading away and the scenario has completely changed. The state authorities have imposed stringent licensing regulations on Atlanta GA hard money lenders. The lenders are bound to follow the policies in every condition. The downsides of hard money loans exist, but their advantages outweigh proving beneficial for borrowers.
What are hard money loans?
A private lender offers a hard money loan, which is supported by a tangible asset like real estate. Unlike conventional mortgages, hard money loans consist of shorter tenures, but higher interest rates. The asset that is purchased is utilized as the collateral for a hard money loan. This eliminates or reduces the risks for both the private lenders and borrowers. Furthermore, hard money loans are good for fast turnarounds between the purchase of property and the sale of it. It can be further used for rapid home financing till the buyer procures a conventional loan.
Hard money lenders are popular in the real estate industry. Investors are often found to purchase homes, fix and repair the flaws and then sell the properties for profits. This is referred to as flipping and securing traditional financing for such investments can be challenging. The real estate investors utilize Atlanta GA hard money lendersfor rental and commercial properties whenever they fail to secure traditional financing.
Working principle of hard money loans
Conventional mortgage loans require proof that the borrower can comfortably repay the debt within a time limit. The credit scores and income sources are evaluated by lenders for creditworthiness. Securing a loan becomes challenging when a borrower has a low credit score or the source of income is not satisfactory as per the lender’s terms and conditions. The high debt-to-income ratio makes traditional loans challenging.
Things are different with hard money lenders. It is a way of borrowing capital for real estate without including conventional mortgage lenders. The financing comes from investors who lend capital based mainly on the real estate property that the borrower uses as collateral. Hard money lenders are not concerned with credit scores and income sources. If a situation arises when a borrower is unable to repay the loan, the hard money lenders will take the collateral, sell it, and get their money back.
Hard money lending is a short-term loan, ranging from one to a maximum of three years. This is an easy, and quick method of getting money for purchasing real estate property. It is recommended that borrowers shouldn’t keep the hard money loans for long tenures as the interest rates are usually higher than traditional mortgage loans.
Assured financing
One of the biggest challenges that real estate investors are facing today is getting loans from conventional sources like banks and other nationalized financial institutions to purchase properties. The traditional money lenders verify the income of the borrower and then decide on the loan amount on the appraised property value. Furthermore, the loan process is lengthy and time-consuming without any guarantee of the loan getting sanctioned.
If traditional money lenders are not satisfied with the source of income of a borrower, the loan application gets rejected. This is why hard money loans have gained so much popularity in the real estate sector. Atlanta GA hard money lenders hold on the property as collateral before lending the capital to the borrower without considering their creditworthiness. Hard money lenders are only concerned with the loan amount being equal to the value of the property.
Rapid closing of deals
Traditional banks and financial institutes usually take a month or sometimes even more to grant a loan application. Thirty days or more is a huge time, especially for real estate investors as the value of properties changes every week. One of the highlighting aspects of hard money loans is that they can be granted sanctions within a matter of a few days. Therefore, waiting for a month for loan sanctioning of a single deal, real estate investors prefer hard money loans and engages in multiple deals. Hard money lending has emerged as an attractive substitute for traditional bank loans.
Better buying and selling
In case an investor has secured a traditional loan for a property but finds another attractive and profitable deal in the middle of the loan term, new deals cannot be purchased unless the previous one is either sold or the loan is repaid. On the other hand, hard money lenders are flexible as investors have the opportunity to engage in other real estate deals. This leads to investors making more money because of the increasing volume of buying and selling of properties.
Offers convenience
Traditional bank loans seem to be more enticing for investors because of low-interest rates and other negligible charges when compared with hard money lending. But the documentation related to income sources, leases, bank statements, tax returns, and others exhaust the borrower. The whole process is time-consuming, and complicated as well. Real estate investors hate to go through such complicated and lengthy procedures. Therefore, they favor hard money loans over traditional bank loans. Atlanta GA hard money lenders might charge higher interest. But there is a guarantee of loan sanctions without the hassle of collecting and submitting heaps of documents.
Good for business networking
While chasing for real estate hard money lenders, one might encounter other real estate professionals and hard money lenders with better deals. It is always beneficial to referral businesses as it helps in introducing new properties to which the investor can benefit. Therefore, it is suggested by experts that investors seeking hard money loans must get connected and build networking for better business negotiations, deals, and ROIs.
Conclusion
Convenience, flexibility, and speed are not just terminologies, but key aspects associated with Atlanta GA hard money lenders. Since hard money lenders excel in certain areas, real estate investors prefer it over conventional bank loans. The flexibility and easy loan application make hard money loans widely accepted and used in the real estate industry.