Hard money loans are financing most often used by real estate investors. These loans are considered “hard” because they are based on the property’s value rather than the borrower’s credit history. Because of this, hard money loans can be easier to obtain than traditional loans. Despite these potential benefits, some misconceptions about hard money loans may discourage potential borrowers.
- They Are Only for Investors
- Hard Money Loans Are More Expensive Than Traditional Loans
People have a misconception that hard money loans are more expensive than traditional loans. The fact is, hard money loans are not necessarily more expensive than traditional loans. The interest rate on a hard money loan may be higher, but the terms are usually shorter, so the overall cost of the loan may be less.
- They Are Only for Short-Term Projects
One of the biggest misconceptions about hard money loans is that they are only for short-term projects. However, hard money lenders will often work with borrowers to develop a long-term financing plan that meets their needs. For example, some hard money lenders offer what’s known as a “bridge loan,” which provides financing until a property can be refinanced with a conventional loan.
- Hard Money Loans Are Only for People with Bad Credit
A popular misconception is that hard money loans are only given to people with bad credit. In reality, hard money loans are based on the property’s value being used as collateral, not the borrower’s credit history. This makes them a good option for borrowers who may have trouble qualifying for a traditional loan.
- They Are Risky and Unpredictable
Hard money loans are often thought of as being high-risk and unpredictable. However, this is not always the case. Hard money lenders typically work with borrowers to create a repayment schedule that fits their needs and budget. The borrower should do their research before signing on the dotted line, as with any loan. But for those who need fast financing and have a solid repayment plan, hard money loans can be a viable option.
All of these misconceptions are false. Hard money loans can be an excellent option for borrowers with good credit who need fast funding for a short-term project. In addition, the government regulates hard money lenders, and they must follow strict guidelines to operate. As a result, borrowers should feel confident that they are getting a fair deal when they take out a hard money loan.