Time and money are the most important elements in the field of real estate investing. This is why more real estate investors are looking for alternative financing options other than bank loans in order to finance their deals. One example of an alternative that investors can benefit a lot from is hard money financing.
Now how does this type of financing edge out other ways of funding properties? The answer lies between time and money – the two essential elements that all investors need in order to succeed in this business. Here is how hard money loans open opportunities groups and individuals investing in real estate:
In the Nick of Time
Traditional lending entities such as banks, mortgage unions and credit firms have a long and tedious process of approving loan applications. A loan application process usually involves determining an investor’s credit score and a property appraisal. The process usually takes up to 30 days or more to complete.
Meanwhile, hard money financing makes the approval process faster by cutting red tape in its loans. Lenders skip the process of determining a real estate investor’s credit score and goes straight to the point by using the investor’s property as collateral. Since a loan is collateral-based, the approval process only takes up to two weeks.
Another benefit that real estate investors enjoy when applying for loans is the amount released for each approval. People who go to lenders know that they can borrow a bigger amount of money from these lenders as compared to a bank loan. The reason behind this benefit is that a hard money loan’s released amount is based on the collateral’s after repair value or ARV. Meanwhile, a bank loan is only based on an asset’s current value.
Hard money financing opens a lot of opportunities to people who want to invest in real estate. This type of financing allows real estate investors to close deals without any money down. It also helps individuals who fix and flip properties to fund repairs for the distressed homes that they purchase.