5 Myths About Hard Money Lending You Probably Still Believe
If you're like most people, you probably have a few misconceptions about hard money lending. Maybe you think that the interest rates are sky high, or that it's only for people with bad credit. In reality, there are a lot of myths floating around about hard money lending. Here are five of the most common ones, debunked:
Hard Money Lenders Charge High-interest Rates
One of the most common hard money lending myths is that these lenders always charge high-interest rates. While it's true that hard money loans typically come with higher interest rates than traditional bank loans, this doesn't mean that all hard money lenders are out to gouge their borrowers.
Some hard money lenders do charge sky-high interest rates, but many others are more reasonable. It's important to shop around and compare rates from different hard money lenders before you choose one to work with.
Hard Money Lenders Only Loan to Risky Borrowers
Another common myth about hard money lending is that these lenders only loan to risky borrowers. This may have been true in the past, but it's no longer the case. Hard money lenders are now willing to loan to a variety of different borrowers, including those with good credit.
The truth is, that hard money lenders are simply more willing to take on projects that may be considered too risky for traditional banks. It's not because hard money lenders are a bunch of gamblers looking to make a quick buck off of unsuspecting borrowers. In fact, hard money lending is a very risk-averse industry.
Hard money lenders are willing to take on projects that traditional banks consider too risky for a number of reasons:
When you take out a hard money loan, the loan is secured by collateral – typically, the property you're purchasing with the loan. This means that if you default on the loan, the lender can seize and sell the collateral to recoup their losses. Because of this, hard money lenders are much less likely to lose money on a loan than traditional lenders.
Most hard money loans have a term of 12 months or less. This means that the lender can get their money back quickly if the borrower defaults on the loan. Traditional lenders, on the other hand, typically have longer loan terms, which means they're at risk of losing money if the borrower defaults.
Hard money lenders are often more flexible than traditional lenders when it comes to things like credit scores and income requirements. This means that borrowers who might not qualify for a traditional loan may still be able to get a hard money loan.
Hard money loans can be used for a variety of purposes, including funding the purchase of a new property, fixing up an existing property, or even paying off debts. Traditional loans are often more restrictive in how they can be used.
Hard money lenders have usually experienced investors themselves, so they know firsthand the risks and rewards of investing in real estate. This experience gives them a better understanding of what projects are worth taking on and which ones are likely to fail.
They Are Very Expensive
Another common misconception about hard money loans is that they are very expensive. While hard money loans typically have higher interest rates than traditional bank loans, the fees associated with hard money loans are usually lower. Hard money lenders are typically more interested in the value of the property than the borrower's credit score, so they are willing to work with borrowers to get a loan that makes sense for both parties.
They're Only For 'Fix and Flips'
Another common myth about hard money loans is that they are only for investors who are looking to buy fixer-upper properties, put some money into them, and then sell them for a profit. While hard money loans can be used for this purpose, they can also be used for a variety of other purposes as well. For example, hard money loans can be used to finance the purchase of a rental property, or even to refinance an existing investment property.
Hard money loans can also be used for personal purposes, such as consolidating debt or making a large purchase. The key is to find a hard money lender who is willing to work with you and your specific needs.
It Takes Forever To Get Approved For A Loan From A Hard Money Lender
This is one of the biggest hard money lending myths out there. In reality, hard money lenders are usually much quicker to approve loans than traditional banks. The reason for this is that hard money lenders are primarily concerned with the value of the property being used as collateral, rather than your credit score or employment history. As long as the property is worth enough to cover the loan, you should be able to get approved fairly quickly.
So there you have it. Five hard money lending myths debunked. We hope this article has helped clear the air about some of the misconceptions people often have about hard money lenders. If you still have questions or would like to discuss your specific situation, please give us a call today. We’d be happy to answer any of your questions and help you get started on securing the funding you need for your next real estate project.
Do You Need a Hard Money Lender You Can Trust?
Persevere Lending (PL) is a California Corporation, specializing in the brokerage of privately funded mortgage transactions for real estate in Northern California, primarily in the greater Bay Area. As you may know, Trust Deed investing, also known as “private” or “hard” money, is a niche alternative investment vehicle that offers an attractive return with the security of a Deed of Trust lien on the real estate collateral. We encourage you to call us at your earliest convenience to discuss private Trust Deed investing in more detail. We can explain how you can enjoy tax-deferred interest income. We can also show you how even if a deal goes bad, you most likely will not lose a penny of your capital and you may actually make much more in the end. While nobody has a crystal ball, and we certainly will not pretend to know what will happen in the future, we do believe that there are trends in the market, both historical and current, that suggest that investing in real estate remains a secure and profitable investment option. Contact us today for your consultation!