When Should You Use a Hard Money Loan?

When Should You Use a Hard Money Loan?

A hard money loan can be considered a short-term loan in the real estate space. Generally, you can expect a loan period of about a single year, with the option to extend this to two or even five years. The primary difference between the hard money loan and the traditional bank loan is that the latter is provided by your everyday banking institutions. Whereas the former is funded by investors in the private sector. This can be a single investor, or a multitude of them forming a fund.

Range of Uses for the Hard Money Loan

There are many uses for hard money loans. Despite the relatively short amortization period, you can still use one to fund commercial, industrial, plots of land, and single-family residences. Depending on your intended provider, there are certain niches in which they specialize. There does, however, seem to be a general prohibition on providing a hard money loan to owner-occupied residential properties. Be sure to ask about this before starting the loan acquisition process, if applicable.

To better acquaint you with the common options, the following list covers a wide range of hard money loan uses. There’s the fix and flip project; the construction and land loan, the expedient loan (when there’s a real estate acquisition opportunity that needs to be acted upon quickly), and situations where the buyers’ credit may be too low to qualify for other types of loans.

What Is Required of the Borrower?

You’ve probably guessed by now that collateral will play a big part in acquiring a hard money loan. After all, if credit isn’t as much of an issue, how else would the creditor mitigate the risk of lending? As such, the property in which you plan to invest is of paramount importance to the prospective hard money lender – which is why it must be an income-producing property. You’ll also need to present a business plan of your fiscal intentions for said property.

Atlas Capital Solutions has many of the answers you’re seeking when it comes to real estate and finances. Check out our blog for more information, and reach out to us if you’ve got any questions.