How Hard Money Loans Can Help When Banks Say “No”
There are many great reasons to turn to hard money loans, particularly when you need to fund a real estate venture, fix-and-flip or other short-term investment opportunity. However, while many people have great reason to start with hard money loans, this is also a popular place to turn when you cannot get funding from the bank.
Hard money loans are a great option for a number of different types of investors—and as most investors know, most banks’ lending practices have become stricter in recent years. This is particularly true for investment properties. Timing, income, sell potential and credit score can all cause a bank to turn someone down for a loan.
However, when banks say “no” you can still come to a hard money lender in order to get the money that you need. Many times, they are willing to say “yes” even when a bank says “no.” This is not the only perk of a private lender and of hard money loans. It is also a great option for those who need their funds quickly. While a bank may typically take around 90 days in order to get the lendee their funds—private funders and hard money loans can come within a couple of weeks, or less.
However, it doesn’t mean that everyone always gets approved for the hard money loan requests that they make. This is why there are a few different pitfalls that you will want to try to avoid when you turn to hard money loans after the bank.
- You don’t have any of your own money in the investment. If you don’t have any skin in the game—your hard money lender may be apprehensive about approving your loan. A loan that covers 100% of the property purchase can be a hard sell. Your lender will want to know that you are also putting some of your own money into the investment.
- You don’t have enough cash on hand. While you don’t need as much money up front with a hard-money lender, you do need to prove that you have the cash to make the monthly payments as you pay back the loan.
- You don’t have an exit strategy. Hand money loans are typically short-term and include a large payment at the end of the term, such as when you sell the investment property. While you are obviously going to have a detailed plan that you are intending on following—you should also explain a back-up plan or exit strategy to repay the loan. This can be refinancing, pulling money from a different source or selling the property.
Keeping these common pitfalls in mind can be very helpful when you go to get a hard money loan. Remember, it is a different process than going through the bank, but ultimately it may be the best and easiest way for you to get all the funding that you need.