Dealing in the real estate world is impressive and competitive. If you are a real estate investor, you would not want to miss any opportunity that has popped up. Why?
Well, in this industry, you will find people going for on-time deals, which are quick open and close deals. There is no doubt that the real estate industry is exciting and profitable.
This is hard for investors as considering a huge capital within a short period is not always possible. Here comes the importance of loans. People don’t see loan-taking approaches smoothly and find it very risky. But when dealing in a risky industry, you have to take enough risk to ensure fortune.
In fact, every business entrepreneur has taken loans at least once in their lifetime. But taking loans is cumbersome in traditional ways. Why? The loan-taking procedure will need to go through various instances and follow some requirements from traditional banks.
Here comes another option for you: a hard money loan.
What Are Hard Money Loans?
It is a sole deal between the real estate hard money lenders and borrowers. If your purpose relates to the property, you can borrow hard money loans from firms or individual lenders.
There is no better deal in the real estate world than hard money loans.
Well, these loans are basically short-term loans ranging from 6 months to 5 years. Well, there is no particular limit to loans, but hard money lenders mainly focus on property deals and its strength.
So, when you are willing to borrow the money, you will need to show a strong plan regarding your loan-taking approach to the lender, and that will be all.
What Are Traditional Bank Loans?
Compared to hard money loan lenders, we all are more aware of the Bank’s traditional loans. Banks are open to providing you with all sorts of loans but getting approved for the loan will be hectic.
These are long-term loans that may rise up to 30 years of span. So, if you want to pay back your money late, you can go for traditional bank loans.
However, they focus more on your financial strength, property value, and legal documents. They do not consider fraudulent approaches, and thus they are more cautious about the loan processing steps.
Well, there are many differences you will find between these two types of loans.
Differences: Hard Money Loans vs. Traditional Bank Loans
As a real estate investor, your main focus is to grab exciting deals. For that, you may need to consider loans that you can easily pay back once the deal is confirmed. But among these two prominent options, which one you can go for?
Including trust issues, time, and processing, we will deliver you some strong points of difference which will help you to make decisions quite easily.
They will verify all your documents, and that will take more than usual time. Apart from that, there is no surety to getting approved for bank loans. This is why investors in the real estate world generally go for quick deals and consider hard money loan lenders.
You don’t need to show your civil score or financial accommodations to get a hard money loan. But the banks will check your entire property, asset, and repayment behaviors, including cibil score.
Compared to hard money loans, conventional banks expect you to pay at least a 20-25% down payment on the property value. This is where the whole thing becomes difficult for real estate developers to cope with. After the initial acquisition, the investors also need to cover the cost of renovation, and thus conventional loans are not feasible at all for them.
We have already discussed the time frame of these two loans. Hard money loans are short-term loans that open and close quickly. You will get a time span of a maximum of 5 years to close these loans. On the other hand, traditional lenders will give you 5-30 years time to repay your whole money, depending on the loan amount and your payment plans.
The interest rates are comparatively higher with hard money loans. Well, these loans are short-term, and thus the lenders do not get much time to get enough profit from the borrowers.
Unlike traditional loans, which may take small interest over a long span to cover their profit margin, hard money loan lenders depend on high-interest rates. Apart from that, the loan amounts are high for hard money loans because most of their property deals are found distressed.