There are countless reasons why people will turn to a private lender to obtain a loan. The main reasons often involve real estate matters, as procuring a property can be quite expensive and risky. In that, finding a bank that feels comfortable lending you the amount you need is hard. No matter your reason for considering a hard money loan, there are some important things that you need to know about private lenders.
Know the Risks
Before you find yourself entranced with the benefits, you should first know the risks that come with obtaining a hard money loan from private lenders. Private lenders tend to work with people who need loans that can be incredibly risky, and most banks often refuse such loans. As such, private lenders will require higher interest rates and heftier down payments in order to protect them from potential fallout.
Moreover, the terms for paying back the loan are much shorter than the 15 to 30 years you would expect from a traditional loan. Due to the high loan amounts, it’s too risky to have such long terms; most hard money loans have payback thresholds of around 1 to 3 years.
Know the Benefits
Now you know the risks involved with hard money loans. However, it’s also important for you to know about the benefits of using a private money lender. One thing you need to know about private lenders is that they usually have lower requirements. As such, they are more willing to work with people who don’t have the best credit scores. That’s why you can expect the turnaround time involving the application and approval process to be much quicker than obtaining a traditional loan.
Why a Hard Money Loan?
If you’re going back and forth on whether you should go with a hard money loan, then there are some questions to ask yourself. The most significant question to ponder is how confident you feel in your ability to pay your loan back in the given timeframe. If you know you can pay the loan back, then it might be your best option, especially if you want to obtain your investment property as soon as possible. That’s because private lenders have a much quicker turnaround time.