This is why many real estate investors finance their investment properties with hard money loans or similar types of loans from private lenders or direct lenders like Lima One Capital. Here’s what you need to know about choosing a hard money lender.
Why choose a hard money loan?
Hard money loans are funded by private lenders rather than banks. Instead of basing the loan primarily on the borrower’s credit history and income level, a hard money lender will underwrite based on assets, focusing on the value of the property as collateral. This means they can close the loan faster and offer more flexibility, which is especially important if you’re buying an investment property in a competitive market. Here are a few more reasons to choose a hard money loan over a traditional mortgage:
You can get approved faster: Because hard money lenders are more concerned with the value of the property than your credit history, you can usually get loan approval faster. As long as there is enough equity in the property based on after repair value (ARV), you have a good chance of being approved.
You can trade from a stronger position: A hard money lender is less likely to secure financing at the last minute. If you are making your offer on the basis of a hard money loan, you may be able to use this as leverage in the transaction. You may also be able to negotiate a lower purchase price since your escrow period is shorter and you can close faster.
You can reinvest the equity in new properties: Private lenders often approve cash refinance applications more easily than banks. Because they view the value of the property as collateral, they view the loan as a positive move rather than a risk. As an investor, you can use this equity to purchase additional properties.