Slightly higher rates equates to a lot less red tape
A hard money loan is issued by an investor (or investment group) who makes loans secured by real estate. While these loans typically charge higher rates than banks, the advantages are numerous. In fact, even investors and developers with access to bank credit and have strong financial statements often opt to use hard money loans (i.e., private money loans) for a variety of reasons.
There are many benefits to hard money lending, but the primary reason has to be the ability of the lender to fund the loan quickly. In most situations, these deals can be completed and funded within a week. Compare that to the 45-60 days it takes, on average, to secure a bank or credit union loan. The application process usually takes 1-2 days, and sometimes can be completed the very same day. Speed can be a huge advantage, especially if you’re trying to secure a property against other competing bids. A quick close with a hard money loan can entice sellers and set your offer apart from other buyers with slower, more conventional funding.
If you’ve been turned down for a conventional loan due to past credit trouble, foreclosures, or a short sale—you know how frustrating it can be. Not to mention, there’s numerous denial reasons banks can offer even if your financial history is spotless (e.g., self-employment, new job and lack of income history, incomplete records). Hard money lenders are able to look past these issues as long the collateral is attractive and the borrower has enough equity invested in the property.
Flexible Term Structure
Private lenders can structure hard money loan repayment and collateral release terms in ways that are mutually beneficial to both lenders and borrower. Banks and credit unions aren’t as flexible and typically take a multipurpose (one-size-fits-all) approach to all loan requests.