Hard Money Loans

The Pros and Cons of Hard Money Financing

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January 25, 2018

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There are advantages and disadvantages to all types of home financing that borrowers need to consider. Finding the right type of loan for your unique needs is what’s important. Hard money loans are a great option for some clients who have bad or minimal credit history or who otherwise have financial hang ups that prevent them from securing financing. Instead of approving the loan on the borrower’s financial and credit worthiness, they are approved based on the value of the real estate being financed. In this blog, we’ll dive deeper into hard money pros and cons, so you can make a better judgment on this type of mortgage. Contact Associates Home Loan of Florida, Inc. about financing in Orlando, Tampa, Sarasota, and nearby Florida.

The Pros of Hard Money Loans

Perhaps the greatest benefit for a hard money loan is that it allows a client in less-than-great financial standing to buy a home. Soft money loans, conversely, are traditional mortgages that base approval on a client’s financial and credit standing. Because we approve hard money loans based on the equity of the real estate, we can accept some clients who have:

  • Bad or minimal credit history resulting in a low credit score
  • Previous bankruptcy or foreclosure
  • Arrears on an existing mortgage or other loan
  • Difficulty proving income because they are self-employed or otherwise have nontraditional income

Another huge hard money loan pro is that they can be approved much faster than a soft money loan. After we can evaluate the property that will be financed, there is substantially less documentation required from our borrowers for a hard money loan than for another type of financing. Sometimes, we can provide approval in just a few days. In a competitive market, hard money loans can help borrowers jump on a house that they want until they are able to obtain more traditional financing.

The Cons of Hard Money Loans

Along with the advantages of hard money loans, it’s important that clients fully understand their disadvantages. Hard money loans typically have very high interest rates. Rates differ for each client and each loan, although sometimes they can be as much as 10% higher than conventional loans.

They are commonly used by house flippers, renovators or other clients who anticipate reselling a property soon or refinancing to another type of loan at some point.

One other potential challenge related to this type of financing is that they are calculated on a maximum of 65% of the property’s current value. This means that clients should be prepared to submit a down payment of at least 35%.

Finding the Right Loan for You

It’s important to know that like there are hard money pros and cons, there are advantages and disadvantages to all types of financing. Determining what type of loan works for your financial goals and your goals as a property owner is what is truly important. If you’re looking to purchase in Orlando, Tampa, Sarasota, or nearby Florida, we can provide the fast approval and funding you want. Contact Associates Home Loan of Florida, Inc., to get started today.

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