Hard money loans are loans where you use your real estate as collateral for the loan. Many people will avoid taking out hard money loans because they are concerned about whether or not they will be able to pay them off, or if the interest rates are too high. In those cases, people may decide to take out a traditional loan instead. Here are just a few of the reasons that you may consider a hard money loan over a traditional one.
- Your credit score is not the best it could be. This is probably the top reason that people decide to work with investor financing instead of trying to go through a bank or credit union for a traditional loan. As you know, it’s difficult to get a traditional loan of any type if your credit score is low; even if you are able to, you’re going to have interest rates that are through the roof. Since hard money loans focus on the value of your real estate (home, land) instead of your credit score, the approval of your loan is almost guaranteed.
- You’re in a financial situation that requires immediate approval. Sometimes, emergencies happen, and some of them cause us to go into a panic. In those situations, you need money very quickly so that you can cover your costs. Many hard money loans are taken out because of medical emergencies and other emergencies that require immediate cash, instead of having to wait several weeks for your information to be reviewed by your bank or credit union.
- You’re selling your current home, but you don’t have the ability to pay anything on your next one. Bridge loans are very common for people who are selling their current home, but are looking to purchase a new home before their current home has been sold.