When you have exhausted all of your financial money borrowing options and need a large sum of money within a short amount of time, a hard money loan is the only available option. Hard money lending is considered an alternative to traditional mortgage lending. Hard money lenders LA do not check the credit score of the borrower. However, they limit the borrower’s ability to pay off the loan within their agreement period.
Traditional lenders take a look at your credit score, current employment status, and disposable income. Additionally, they also look at your history of responsible borrowing if you have had any loans in the past. If you have a good record for all of those mentioned above, only then do traditional lenders consider giving you the loan you requested for.
Hard money lenders have a completely different approach towards lending a hard money loan. Hard money loans are secured based on collateral. Hard money lenders are less concerned about your ability to pay off the loan. Owing to the nature of the risk they take, hard money loans have higher interest rates compared to other traditional money loans.
When you agree to take a hard money loan from the lender, you agree to the lender selling off your property upon your failure to clear your debt within the agreed time. Extensions are possible. However, hard money loans have shorter periods compared to other loans and higher interest rates. This means that a lengthy extension for clearing the loan is not likely. The longer you extend your loan period, the higher the interest rates start accumulating.
Why should you opt for hard money loans?
We know by now that hard money loans are more expensive than other traditional money loans. Then why should you consider going for it?
Here’s why:
Speed
Hard money loans are entirely based on the collateral you submit and not your financial history or status. Therefore, the approval rate for hard money loans is faster than other traditional loans. There are comparatively fewer data to check and thus, once approved, a hard money loan comes through sooner.
Once you close the deal with your lender, you can also avail of exclusive offers which are not possible to go for through traditional borrowing options. This option right here helps you compete with your competitors if your loan is business-related.
Flexibility
Hard money loans are more flexible than traditional loans. Hard money lenders are not concerned with your financial history as long as your collateral can justify the sum of money you wish to loan. Therefore, each deal is evaluated on a fair individual basis instead of evaluating past money borrowing behavior. If you are in the fix and flip business, then hard money loans are the best option for you to go for, as you can tailor loan timings and repayment schedules with your lender.
Approval rates
The primary factor in a hard money loan is the collateral. The lender will give you as much money as the collateral deserves. The amount of loan you get will be taking into account the LTV ratio against your asset. The lender here is not concerned with the negatives or inappropriate money borrowing behavior in your history. Hard money lenders are only concerned with the property’s value against the loan sum you are borrowing.
The majority of money lenders have a low LTV ratio. They are usually capped at 50-70%. Such ratios decrease the money lending risk for lenders and ensure that the lender can sell off the property should the loan amount not be repaid.
Final Thoughts
So, if you have read the article thoroughly, you have obtained enough reasons to opt for hard money loans. You should also checkout What to look for from private lenders.