Hard money loans are a type of financing that is secured by real estate, typically used as a short-term loan for flipping houses or rehabilitating properties. These loans are often characterized by higher interest rates and shorter repayment periods than traditional mortgages.
There are a few reasons why investors may favor hard money loans over traditional loans:
Faster approval process: Hard money lenders may be able to approve and fund a loan more quickly than traditional lenders, which can be beneficial for investors who need to act quickly on a real estate opportunity.
Flexibility: Hard money lenders may be more flexible with loan terms and may be willing to work with investors to create a customized repayment plan.
Alternative credit criteria: Hard money lenders may be more willing to lend to investors who have less-than-perfect credit or who are self-employed, as they are primarily concerned with the value of the collateral being used to secure the loan.
Short-term focus: Hard money loans are often used for short-term real estate investments, such as flipping houses, where the investor intends to sell the property quickly. Traditional loans are typically geared towards long-term homeownership, which may not be suitable for investors with a shorter-term focus.
It's important to note that hard money loans can be more expensive than traditional financing options and may not be suitable for everyone. It's always a good idea to carefully consider your options and weigh the pros and cons before committing to a hard money loan.