Myths About Hard Money Loans
Hard money loans have many different names. Sometimes, they’re called bridge loans or private money loans. Whatever you call them, there are a lot of myths around this type of lending. Let’s talk about some of the misconceptions.
First, understand what a hard money loan is. This funding is based on the value of property, rather than a borrower’s credit score. Typically, hard money loans are through private investors, rather than banks. Bridge loans are usually used by property investors who need a short-term loan to flip-and-fix a piece of real estate or need transitional financing.
Myth #1 – Only Desperate Borrowers Need Hard Money Loans
Although it’s generally easier and quicker to get a hard money loan than a traditional loan, borrowers still have to go through the loan process to qualify for the terms they need. Many borrowers use private money loans as a way of avoiding the long process of getting a conventional loan and would rather work with an individual investor.
Myth #2 – Hard Money Lenders Are Swindlers
Sure, the lender is in the money-making business, but many hard money lenders are fair and want return business. There are loan sharks in the industry, but by looking around at reputable lenders, you will find one that will work with you and provide good customer service. The lender makes money when your investment succeeds.
Myth #3 – You Can’t Get a Traditional Loan When You Have a Hard Money Loan
Some people believe that you have to choose conventional lending or private money loans. Good business sense means that you draw from as many lending sources as possible to fund your project. You should be up front with your lenders about all of the funding you receive, but there’s no rule that say you can’t have different types of financing.
Myth #4 – Hard Money Loans Are More Expensive
Profitability in your business is affected by many different factors. Even though it makes sense to pay as little as possible for financing, it also makes sense to look at the big picture. If you need funding in a hurry and can’t get a traditional loan in place, what would you lose? Isn’t it better to pay a higher interest rate for a short time to make a bigger profit?
Hard money loans make sense under certain conditions. You may be able to negotiate with the lender for better terms, which may not be possible when working with a traditional lender, such as a bank or credit union. Don’t discount this type of loan until you have explored your options.