Real estate investment has been a venture that requires much money, and many investors are not always with the necessary amount when it comes to closing a deal. Hard money loans are used by many investors to fund a real estate deal for a short-term. While there are financial institutions that lend out money to investors and other people, hard money lenders do this and accomplish it within a short time. In most scenarios, when closing a deal on a property, a buyer is expected to pay a certain amount as a portion of the total value of the deal, this is known as the cash down payment. Also, when borrowing money from hard money lenders, you are required to drop collateral as a down payment.
Undoubtedly, most real estate investors still opt for the hard money loan despite its short-term feature and high-interest rate. It may surprise you to know that hard money lenders may not consider your credit scores but have eyes on your property, suffice it to be that hard money lenders give out properly collateralized loans. They will always require tangible collateral of somewhat equal value to the amount you are borrowing as collateral.
In fact, when it comes to the requirement that makes you eligible for a hard money loan, you cannot overemphasize the need for down payment or equity in the property to serve as the collateral for the hard money loan. Of course, it is not always to have just one property that worth the collateral for your loan which is your down payment, in such cases, cross-collateralizing comes to play. Cross-collateralizing entails using multiple properties to secure a loan; this is to make up for the required down payment.
The higher the down payment, the lower the risk a hard money lender runs. Unlike a hard money loan request with a small down payment, when you opt for a hard money loan and presents a down payment that is large enough regarding value, there is every likelihood that your request will be approved. Hard money lenders care little or nothing about your financial position and ability to repay the loan, in a case where you can’t meet up as agreed, they will take the collateral.
Surprisingly, some hard money lenders now demand cash down payments like the traditional banks, some ask for 8-10% of the purchase price which is not a feature of hard money lenders. Generally, hard money lenders do not demand cash for down payments; rather they are bent on getting your property as collateral before the loan is approved. Also, your cash reserves may give you an edge when you want to borrow from hard money lenders; this ensures that you can foot your monthly loan payment and other holding costs.
Hard money lenders have been a source of financial help to investors even with the high-interest rates, the major down payment being the collateral is taken in the case of breach of an agreement. However, hard money loans remains what virtually every real estate investor rely on to close so many deals.