While working with a mortgage lender is the most common way of securing a home loan, some circumstances may prevent aspiring homeowners from getting the funds they need. Perhaps traditional lenders won’t approve your loan for one of several reasons, or you need the loan to be approved more quickly than lenders can process. When faced with any of these obstacles, one can consider hard money as a way to borrow without going through traditional means of lending a mortgage. These are loans that come from individuals or investors instead of banks, and they lend money using your house as collateral.
Here are some of the advantages of working with hard money lenders for a home loan instead of a traditional borrowing scheme.
Defining Hard Money
Much of your success with securing a loan will depend on the proof you show lenders for repayment. This is where credit scores and available income factor in. Maintaining a good history of borrowing and repaying loans measured by your debt to income ratio will improve your chances of securing approval for a loan.
While traditional lenders are the go-to method for the loaning process, sometimes it can be painstakingly slow, especially if you have any negative items in your credit report or different sources of income that are difficult to verify. Even those with good credit scores and stable sources of income may not be eligible for loans.
With a hard money loan, collateral is used to secure the money lent out to borrowers, so they are much less concerned with your capability to repay. This is because lenders can use the collateral and sell it if the borrower can’t fulfill their payment of the loan. Your financial ability matters less than the value of the collateral property.
These loans are typically meant for the short-term, meaning anywhere between one to five years. This is advantageous because hard money interest rates are higher than traditional loans, so keeping the term short will prevent you from paying back more than you can afford.
The Advantages of Hard Money
The high-interest rates and the expense of hard money may cause borrowers to hesitate. Depending on your situation, hard money can be advantageous for those who cannot get loans traditionally when they need it. Here are some of the advantages of hard money.
Closing hard money loans is usually much faster than traditional loans. Since lenders don’t have to go through all the details of your loan application, you can make the necessary arrangements in a shorter amount of time.
Traditional lenders are usually well-established corporations with strict policies that all borrowers must abide by. With hard money loans, you might be able to discuss some of the terms like repayment schedules with the individual or investor you’re borrowing from.
Approval Using Collateral
Loan approval systems based on collateral can make the whole process much easier. Some lenders may even be lenient enough not to look at your credit score as long as they have some sort of assurance with your personal finances. Local Dallas-Fort Worth Metroplex Hard money lenders usually keep a low loan-to-value (LTV) ratio, with maximum rates being up to 70%, requiring assets to qualify for hard money. This way, they’re fairly confident that the collateral can be sold, and they can get the money back if you fail to pay for the loan.
If you’re amenable to short term loans, have assets, and need to borrow quickly, then hard money loans may be the best option for you. It’s an easier alternative to traditional loans, which can take time to be approved if it is granted at all. Homeowners can also use hard money to secure a property and then refinance to get a better loan. If these sound more advantageous for your capabilities as a borrower, then it might be worth looking into hard money lenders near you.
Here at DFW Investor Lending, we have a qualified team of investors ready to assist you with your real estate projects. We have extensive experience in appraisals and rehab projects to ensure you get the best guidance in today’s markets. To explore hard money loan rates in Dallas, contact us today for details on our loan programs!