What may be really hard to do is discovering a lender which will be likely to grant you a loan in a recession such as we’re currently experiencing. But thankfully hard money lenders are accessible much more than ever since the downturn of the real estate market. Hard money lending is enjoying an increase in activity for numerous reasons.
First of all, conventional lending has really taken a dive because of the current economic recession. In such an uncertain environment banks are just not willing to lend money at the usual market rates. The number of sub-prime borrowers within the market for loans make it too risky for most traditional lenders to lend.
Possessing a bad credit score history, or not sufficient revenue are a couple of possible reasons for lenders not lending to these borrowers.
However, hard money lenders are much more than willing to lend to the right people if they have collateral to back up the loan. In this way a hard money lender won’t lose his money since the collateral may be transferred to him and, if he did the deal properly, he ought to be in a position to profit if a default happens.
While this type of lending might be looked down upon by many people, and especially governments it appears, it is really a really useful service to those that know how you can use it properly and responsibly.
Property investors are a group that can benefit from hard money financing. The quickness in granting a loan is what brings investors of this kind to hard money lenders. In some instances a loan may be granted by a hard money lender in as small as three days.
Real estate investors lots of times have to jump on deals so fast that obtaining a loan in a hurry is really advantageous. Obviously certain real estate investments may be a bit risky so whatever property is being funded by the loan will probably be utilized as the collateral to secure the loan.
Hard money lenders will generally as a rule charge higher rates of interest since they need to be compensated for the measurably higher risk of their lending. But obviously a lender who is taking on so much much more risk ought to be and economically should be compensated for it by higher interest payments.
For the borrower, though, the interest payments might not be all that much because most hard money loans are for a duration of less than 5 years and less than two years in many instances.
If the borrower does everything right he should nonetheless manage to create a good profit on whatever property he is financing using the hard money loan. So really it is a win-win situation for both the lender and borrower. They each stand to profit from the transaction and provide value to other people in the process.
So hard money lending is a superb method to finance certain investments, especially real estate in these troubled economic periods.