Hard Money Loans :: Pros and Cons

Hard money loans are a way of borrowing money without going through the traditional means of obtaining a mortgage. Hard money loans are a collateral based loan. Therefore, the property is used as collateral to obtain the loan. As a result, if anything were to go wrong, the lender has the ability to retrieve the asset and sell it to get their money back.

Hard Money is not for everyone. Typically, hard money loans come with a much higher interest rate than conventional loans (not unusual to see 10%). On the other hand, if a quick closing is a sticking point for a deal to happen, a hard money loan may be the answer. Also, in order to obtain a hard money loan, one must have a down payment of between 20-40% as well as (in some cases) origination fees of several points.

Since hard money loans have a higher interest rate than conventional loans, they are typically used for short periods. Typically, a hard money loan can be established for one to five years. It is important to calculate plans in accordance to when the loan matures. Many hard money lenders do interest-only payments that balloon if you do not pay off the loan within the allotted time. These loan types are perfect for the investor who fixes and flips. Rather than paying cash for the property, one can establish a hard money loan then use the capital for improvements.

One of the great things about working with hard money is that they are (typically) investors. So, if a flip needs more time, or a change needs to be made, it is much easier to negotiate a change of terms than it would be if working with a conventional lender.

If you’re looking for a hard money loan, give The Peters Company a call at 678-921-1470. We can give you a list of several hard money lenders to turn your dreams into a reality.

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