Know your options: hard money financing

Short term loans from hard money lenders are often a tool used by investors to finance a multitude of project classes. When compared to a conventional mortgage, these loans carry both pros and cons that can either make or break your bottom line at the end of the day:

Pros

  • Flexibility: Hard money loans are issued by private lenders and are more flexible. This allows borrowers to work with the lender to craft a loan structure that suits their needs. The ability to tailor a repayment schedule and down payment terms directly with the lender is crucial to being able to determine a deal's feasibility. 
  • Access to capital: A hard money loan makes it possible to get funding turned around in a much shorter time frame. Many hard money lenders are able to get a deal done in as little as 10 days. 
  • Collateralization: The big benefit of a hard money loan is that collateral in the deal is on the property in question. It is important to understand where collateral lies in these deals regardless, as personal guarantees can often lie elsewhere in a contract. Use a smart mortgage broker to get you the most borrower-friendly deal possible.

Cons

  • Loan term: Compared to a traditional mortgage, loans of this nature typically have shorter term lengths ranging from 6-24 months. This makes time management and scheduling in a hard-money financed project that much more important. The last thing you need is extension fees eating into your bottom line.
  • Fees/Expenses: With convenience and flexibility naturally comes higher cos regarding fees and expenses. Hard money allows borrowers access to capital that would otherwise not be there, so be prepared to pay for that convenient access.

As always, it is imperative that you consult with a knowledgeable mortgage professional when weighing your options regarding project financing. At CMG we are extremely well versed in hard money financing and would be happy to show you the ropes on your next acquisition where it is required.

 

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