When new investors need capital, they usually call a bank first. Banks work for some deals. For many investment properties, though, a hard money loan is the better tool, and it’s worth understanding why before you rule it out. The benefits of hard money loans come down to speed, cost and flexibility.
Hard money has a reputation as a last resort for borrowers with bad credit. That isn’t accurate. Experienced investors with excellent credit use hard money all the time, because it solves problems that bank loans can’t. Here are four of the main advantages.
1. Faster closings
Once you’ve found a property, time works against you. The longer a closing drags on, the more chances there are for another buyer to step in or for the seller to lose patience.
Bank underwriting can run for many weeks, and it often stalls on properties that need work. A hard money lender bases the decision mainly on the property, so the process is usually quicker and more predictable. Most Sachem Lending loans close in 30 to 45 days, and sometimes sooner. That lets you make stronger offers, and it frees you up to pursue more than one property in a year.
2. It can cost less than a money partner
Investors who are short on cash often bring in a partner to fund the deal. The investor finds and manages the property, the partner puts up the money, and the two split the profit, commonly 50/50.
With a hard money loan you pay interest and fees, and the rest of the profit is yours. On a good deal, that usually leaves you with far more than half.
3. Qualifying is based on the property
Banks approve loans mostly on the borrower: income history, credit score, debts and cash reserves. That’s a hard standard to meet if you’re self-employed or your income is uneven.
Hard money lenders start with the asset. Because the loan is secured by the real estate, the value of the property and the strength of your plan carry most of the weight. Your credit and experience still matter, but they aren’t the whole decision.
4. Consistent loan programs
A private lender that makes many loans has to run consistent programs. Loan-to-value limits, pricing and underwriting standards are set out in advance, so you know what to expect before you apply and can plan your deals around it. You can review ours on the loan terms overview page.
Weighing the benefits of hard money loans
Hard money isn’t free money. Interest rates are higher than on a conventional mortgage, and the loans are short-term, so you need a clear plan to sell or refinance. For a fuller explanation, read everything you need to know about hard money loans.
Getting the benefits of hard money loans
Sachem Lending provides hard money loans to real estate investors across the eastern United States. See where we lend, browse our loan programs, or contact us to talk about your next property.
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