5 Reasons to Use a Hard Money Loan

What are Hard Money Loans?

Hard money loans, aka private money loans or asset-based loans, are just one type of short-term financing most often used by real estate investors or developers to purchase, renovate or refinance properties. Simply, a hard money loan is a loan for a property that doesn't come from traditional lenders, but from people or private companies that accept assets as collateral. This type of loan can be beneficial for a few reasons, mainly: 

1. You don't need to have great credit. Because hard money loans are not traditional bank loans, the borrower's financial history or credit is not necessarily taken into consideration. The loan is based on the value of the property alone. 
2. It speeds up the process. Because you're not going through a traditional financial institution, the borrower can get their money within a matter of days, instead of weeks or months. This can be helpful in situations such as foreclosure auctions or competitive markets. 

So, how does it actually work? 

Hard money loans are typically provided by private lenders, such as investors or small companies, rather than banks or other large financial institutions. The short-term loan ranges from a few months to a few years, and, to compensate for the higher risk involved with hard money loans, the interest rates are higher. 

As mentioned above, the key factor in these types of loans is collateral: the property being purchased or renovated. The value in question determines the loan amount, and the private lenders tend to provide loans ranging from 50-70% of the property's appraisal. You'll need to provide a down payment on the property (about 20-50%) and then that property serves as the loan's security. If the loan is not repaid, the property is foreclosed and sold to recoup the investment. 

Why Choose Hard Money Loans?

So to close, why would you choose to use a hard money loan? 

Despite the higher interest rates and fees compared to regular loans, they can be a great option depending on your situation. Here are 5 reasons you, the borrower, might use a hard money loan: 

1. Credit Issues: If you have a history of poor credit, foreclosure, or bankruptcy, you may find it challenging to qualify for traditional loans. Hard money lenders focus on the property's value rather than your creditworthiness, making these loans a viable option for borrowers with credit issues. 
2. Time-Sensitive Deals: In a competitive real estate market like Boise, a quick offer can make a difference. Hard money loans have a fast approval and funding process. 
3. Property Renovations: If you're a real estate investor who plans to employ the BRRRR method of real estate investing, you'll need to purchase and rehab properties to increase their value. A hard money loan is a great option for this type of investing, because the property serves as collateral, and the loan can be used to fund the purchase and renovation costs. Once you complete renovations, the property can be sold or refinanced with a traditional loan.
4. Flexible Loan Terms: Hard money loans typically employ more flexible loan terms and requirements. Instead of only considering credit score or income requirements, lenders have the potential to consider factors such as the property's potential value, the borrower's experience in real estate investing, and the overall profitability of the deal.
5. Investment Properties: If you're looking into purchasing non-owner occupied investment properties, like rental or commercial properties, you may find it difficult to qualify for a traditional loan, especially if you're just getting started. Hard money loans can be a viable option for financing investment properties, as they are primarily based on the property's potential value. 

If you have more questions about Hard Money Loans, you know where to find us! We'd love to talk with you about all things real estate investing, and look forward to meeting you. 



Give us a call at 208-957-0208 or email us at info@boiseturnkey.com to get started!