If you need money to close a real estate deal quickly, or if you can’t qualify for a traditional mortgage because you have poor credit or can’t document your income, you may want to explore a hard money loan, which is also known as a bridge loan. This option can get you funds in a fraction of the time it would take to secure a traditional mortgage and can let you buy a property even if traditional lenders have turned you down. There are, however, some drawbacks to consider.
How Does a Hard Money Loan Work?
A traditional mortgage is offered based on an applicant’s creditworthiness. A hard money loan, on the other hand, is not based on a person’s credit score (although it may be a consideration). Instead, a hard money loan requires equity-based real property as collateral. Hard money loans are only available through private lenders or individual investors, not through traditional financial institutions.
An application for a hard money loan can be processed in a matter of days or weeks, as opposed to weeks or months for a traditional mortgage. A hard money loan requires a larger down payment and has higher interest rates and fees than a conventional mortgage.
The repayment period for a hard money loan is shorter than the repayment period for a conventional mortgage. Some hard money loans have interest-only payments, followed by a balloon payment.
Who Should Consider a Hard Money Loan?
If your credit score is too low to qualify for a conventional mortgage, or if you’re self-employed and can’t document your income enough to satisfy a traditional lender, a hard money loan may be your only option. A hard money loan is also a good choice for someone who plans to flip a property or fix it up and resell it quickly. If you’re bidding on a property and competing against other potential buyers, the ability to secure financing and close the deal quickly can help you snatch up a desirable property.
Is a Hard Money Loan Right for You?
If you’ve applied for a mortgage through a traditional lender but your application was denied, or if you need a short-term loan to buy a property that you intend to flip, a hard money loan may be the best option for you. Sachem Lending may be able to help you get the financing you need, even if you’ve been turned down elsewhere. Contact us today to learn more about hard money loans or fill out an application online.