Did you find a house to buy that has a lot of potential if you were to purchase it and flip it? You might not want to pass up this great deal, as it can be hard to find homes like this, but what if you cannot get a loan to buy the house? There is a solution for this, and it is called a hard money loan. People often turn to hard money loans in situations like this, and here are the reasons these are ideal loans for certain types of situations.
They are not based on credit
The first reason many people turn to hard money loans is because they do not generally require that you have good credit to qualify. If you were to go to a regular lender to borrow money, would you meet the credit guidelines? A lot of people would not, and that is why they are perfect for people who would get turned down by a regular lender due to not having great credit. If your credit is not the best, you could still likely qualify for this type of loan.
They are based on collateral
Instead of basing the loan decision on your credit, a hard money lender looks at other things, and the main thing is the collateral. They will loan money based on collateral, as they can always take the collateral back if a borrower defaults on the loan. They can then sell it and recover the money they loaned out.
They are fast
A hard money loan is issued very quickly, too, compared to a traditional type of loan, and this is another reason people turn to them. If you really need the money fast, you would benefit from choosing this form of loan instead of a traditional loan.
They are bridge loans
The other thing to realize is that a hard money loan is often called a bridge loan. This means that it is not considered a long-term loan. Instead, it must typically be paid off in less than five years. In most cases, though, they are due in just one year, which is usually plenty of time to rehab an investment property.
There are several downsides to hard money loans, too, but the benefits usually far outweigh the downsides. Make sure you fully understand the terms of your loan if you decide to use a hard money lender to fund a property you would like to buy.