Hard money is a term thrown around by real estate agents more and more these days. However, those that are not in the industry may not understand what it means. What is hard money? Quite simply, it is money from a private lender that provides funding based on the property you want to buy – not your credit score. These types of loans typically carry a higher interest rate than average. There are also typically higher application fees.
Who Needs a Hard Money Loan?
Hard money loans can be accessed quite easily if you qualify. They eliminate a lot of stringent requirements found with other types of lending. This alternative source of lending is great for those that are capable of affording a home, but are unable to secure a traditional mortgage.
Hard money loans are typically ideal for those who do not plan on owning the home for a long time. Those who like to purchase homes, improve them, and sell them for a profit regularly utilize hard money loans. This has led to a market for hard money Arizona and other states that currently have a buyers real estate market. Due to their high interest rate, hard money loans are not well suited for those who intend to own their home for a long period of time. However, bear in mind that you can purchase a home with hard money and then find an alternative source of financing at a later date.
What Are The Qualifications?
The qualifications can vary dramatically depending on the lender. As hard money loans come from private lenders and investors, they are able to set their own criteria. They may use income, credit score and other familiar lending criteria to determine if you are eligible for this type of financing. However, the majority of hard money lenders in Arizona and other similar states will use the real estate value of the home. Unlike traditional mortgages, hard loans will only finance 65% to 75% of the home’s value – and that is in the best-case scenario. This means that it will be difficult to purchase a home solely with a hard money loan; you will require another source of financing. However, this type of loan will be able to cover the majority of the home payment.
Hard money loans are an excellent alternative source of financing for those who wish to purchase real estate. Since they do not typically rely on your credit score, this is a great source of financing for the investor or owner with an unfortunate credit score.