A person who wants to buy a property, such as a house or property they intend to build on, needs some kind of financing in order to make the purchase. Whether that person intends to live in the house, wants to flip and sell it, or wants to use it as an investment, a loan will be necessary to complete the purchase.
Unfortunately, seeking financing through a traditional bank or mortgage company can take quite a while, sometimes up to six weeks or longer. There are many requirements for securing such financing, such as a complete credit check, inspection and evaluation of the property, providing proof of having enough funds on hand to make a certain number of payments, and making a specified down payment for the property. These loans typically can fund up to 90 percent of the property’s valuation on 15 to 30-year terms.
On the other hand, there are what’s known as hard money loans. This type of financing doesn’t require such a long approval period or so many requirements. A credit check or proof of income isn’t even required. A hard money loan is based solely on the value of the property involved. These are usually short-term loans, often made in order to make a purchase in a hot real estate market where waiting weeks for financing can often mean losing out on the purchase.
They are often used as bridge loans as a way to secure quick financing for a property purchase while waiting for a traditional loan to be approved, as construction loans, or buying out a business partner or a sibling in the case of an inherited property with more than one person sharing in the bequest. They can also be used to tap into a property’s equity in case of emergency, such as sudden medical bills.
Other differences include the fact that a hard money loan usually doesn’t cover as much of the percentage of the purchase price as a traditional loan and doesn’t allow for long-term payments, as they often last five years at the most. This is why they are often used while waiting for traditional loan approval. In addition, the interest rate charged will often be higher. However, there are plenty of situations in which a hard money loan would come in handy.
Most hard money lenders consist of groups of investors rather than being backed by a traditional financial institution. They can be obtained by contacting private loan companies. In California, one of the premier hard money lenders is California Hard Money Direct. They provide quick approval, sometimes the same day as the application is made. Of course, checking out several companies is important.