Pros and Cons of Hard Money Loans

Like any other loan, when it comes to choosing a hard money lender, you must understand all terms of the hard money loan. This stems down from how much you can borrow, the amount of security you have to put down (real estate), the repayment terms, interest rates, and the duration of your loan term. Here we’ll cover a few of the pros and cons of taking out a hard money loan, to help you decide if this is the right option for you if you have less than stellar credit when applying for loans.

The Pros

If you’re considering applying for a hard money loan and looking for the best San Diego hard money lender, you need to shop around to find the best loan terms. Some benefits of taking out a hard money loan include

  1. You can borrow even if you don’t have a good credit score
  2. They are quick; as a borrower, you’ll typically have the funds in 24 to 48 hours
  3. The requirements are lenient; as long as you have real estate to put down as security, most lenders will approve your loan
  4. It’s great leverage in the real estate market; if you’re a flipper looking for a great bargain, this is a simple way to get your hands on quick cash to fund the purchase

The Cons

There are, however, some drawbacks worth noting as well. Some of these include

  1. The repayment terms are usually quite short (12 months, some offer the option to extend up to 5 years)
  2. Interest rates are high; you might be looking at 15% on a 5-year loan
  3. There’s little oversight and government regulation (meaning you really have to be careful when choosing a lender)

All in all, if you’re an investor in need of quick cash, a hard money loan might be exactly what you need to make that move. Understanding the terms of your loan is imperative to avoid getting stuck with a loan you can’t repay or will struggle in making ends meet to repay. Before you select a hard money lender to borrow funds from, make sure you know what you are getting into. As long as you are a responsible buyer, understand the terms, and know what the terms of your loan are, you should be fine. Don’t jump into a situation you can’t get out of, make sure you choose the right lender, and fully understand the terms of your loan before you borrow.