6 Hard Money Loan Myths Debunked

In the context of real estate investing, hard money refers to a type of short-term loan that is secured by real estate property. These loans are typically provided by private individuals or companies rather than traditional banks or financial institutions.?

The name "hard money" is derived from the fact that these loans are secured by a tangible HARD asset (real estate) rather than based on the borrower's creditworthiness or financial history.

Hard money loans are often sought by real estate investors for fix-and-flip properties due to their speed and flexibility.?

A lot of myths surrounds hard money loans, and many people who would benefit from a hard money loan are put off by the stigma that surrounds them. Here are six myths about hard money loans.

1.?MYTH: HARD MONEY LOANS ARE MORE EXPENSIVE THAN CONVENTIONAL LOANS

Hard money loans do tend to be more expensive upfront. However, the shorter terms without prepayment penalties mean that you can potentially pay off the loan faster, with less interest in total.?

You can also usually get a higher percentage of your project’s total cost, so you need to invest less of your own money. These perks can make hard money loans a less expensive choice overall.

Remember: The faster you fix & flip, the cheaper the loan costs.

2.?MYTH: YOU DON’T NEED DOCUMENTS FOR A HARD MONEY LOAN

The myth that you don’t need any documents for a?hard money loan?comes from the fact that hard money loans are often more lenient than conventional loans. However, with any loan you will need documentation to qualify.

For a more in-depth?list of documents required for hard money,?click HERE.

3.?MYTH: YOU HAVE TO BE DESPERATE TO GET A HARD MONEY LOAN

Because hard money lenders are more lenient than conventional lenders, many people think you must be desperate to get a hard money loan, or that you can’t qualify for a traditional loan.?

This simply couldn't be further from the truth.?

Many people choosing to get a hard money loan over a conventional loan are doing so because of the fast-closing time, types of loans, and more flexible terms.

Traditional banks will not lend on non-owner occupied properties for rehab/re-sale purpose, it's just too risky! Hard money lenders are your partner in this scenario.

4.???MYTH: HARD MONEY LOANS ARE RISKY

One of the most commonly held beliefs about hard money loans is that they’re risky. This is simply not true. Hard money lenders are usually lending out their own money, which means that approving a risky loan isn’t in anyone’s best interest.

Even if the deal looks amazing on paper, a hard money lender will make sure the market is right to support the loan.

5.?MYTH: HARD MONEY LOANS ARE A TRAP

Hard money loans should always have an exit strategy. If your lender doesn’t seem to care about how you will pay back the loan, you should find a new lender.?

Whether you are flipping a property, renting it out, or refinancing, you should have a solid strategy before attempting to take out a hard money loan.

Remember: before you walk through the front door, know where your back door is.

6.?MYTH: HARD MONEY LENDERS ARE LOAN SHARKS

Hard money loans have a somewhat notorious history when compared to conventional bank loans. However, they have become more and more mainstream, and there are huge hard money loan companies now that can compete with banks for your business.

This is a great thing because more competition = more fair rates & terms.

There are definite pros and cons to both conventional loans and hard money loans. If a hard money loan is better for your project due to its flexible terms, fast closing time, and covering more project costs, you shouldn’t be deterred by outdated myths.

Need HARD MONEY?

If you are considering hard money loans for your projects, make sure to find a reputable company like Power Capital Solutions and have your documents, plans, and expectations in order before meeting with them.

If you currently have a deal scenario and are looking for a hassle-free hard money lender,?shoot over the details HERE today?and let us know how we can exceed your expectations!