Do you need instant money to invest in a property? Well, the bank or other traditional loans can take a few weeks or sometimes a few months to approve and the worst thing can be you lose the opportunity to buy the property. Fortunately, you can opt for hard money bridge loans and get the amount as soon as possible.
Highlights:
đź ®Hard money loans are generally provided by lenders or companies and not by any bank.
đź ®A hard money loan takes less time than other traditional loans. However, borrowers need to repay the amount at higher interest rates and within a short time.
đź ®There are many differences between bridge and hard money loans including Interest Rates, Qualification Eligibility, Loan Purpose, and Approval Time.Â
đź ®Understanding Bridge Loans vs. Hard Money Loans can help investors choose the right financial options to fulfill their needs.
Hard Money Bridge Loan: Definition
Individuals or companies, not banks give hard money loans or short-term bridge loans. The loans are primarily used for real estate purposes by flippers, investors, and developers. A hard money loan can be approved quickly but might cost higher interest rates.
How Does Hard Money Bridge Loans Work?
Instead of evaluating the credit score of the borrower, hard money loans are mainly given based on the property value. You can use the hard money loan to purchase a property or one that you already own. To avail of a hard money bridge loan, real estate investors might need to make a down payment of 20% to 30%. The value of a hard money loan will always be less than the value of the property, allowing the borrower to sell the property for a profit.
Pros & Cons of Hard Money Bridge Loans
Like other financial transactions, hard money loans have certain advantages and disadvantages. Have a look at these:
Pros
- The biggest advantage of hard money loans is that it typically takes less time to apply for a mortgage or other traditional loan through a bank. And if the borrower has a good relationship with the lender, the process can be even easier.Â
- Hard money loans are provided by companies or individuals instead of banks.Â
- While approving a hard money loan, the lenders will not check the borrower’s history or credit score.Â
Cons
- Borrowers need to make a good amount of money as a down payment to get the loan as well as they need to pay a higher interest rate.Â
- hard money bridge loans need to be repaid in a relatively short period, generally somewhere around one year.Â
How to Approve for Hard Money Bridge Loans?
Hard money loans are easy to qualify for compared to other traditional loans. Lenders will check only a few things before approving a hard money bridge loan. These are:
- Amount of down payment made by the borrowerÂ
- Value of the investment property
- The conditions of the real estate market should the buyer default and the property need to be sold.
Hard money loans take a time of a few days to approve while conventional mortgages and government-backed loans mostly take a few months to approve.
Difference Between Bridge and Hard Money Loans
Most of the borrowers often get confused between the terms hard money and bridge. Are you one of them? Then go through the section below:
Interest Rates: Hard money loans are based on property’s value instead of borrowers’ creditworthiness. These loans are high-risk investments as lenders often charge higher interest rates. On the other hand, bridge loans are long secure investments and have lower interest rates compared to hard money.
Qualification Eligibility: Hard money loans are often approved based on the property’s value. Borrowers don’t need to maintain a good credit score. To get a bridge loan, you must have a good credit score.
Loan Purpose: Hard money bridge loans are primarily used for real-estate transactions while bridge loans are used to bridge the gap between financial needs.
Approval Time: Hard money loans take less time to approve compared to bridge loans.
Is Hard Money Bridge Loan a Good Option?
It depends on the purpose you want the loan for. Hard money loans are ideal for those who want money at the earliest time. But make sure that you can repay the borrowed amount within the given time at a higher interest rate.
Risk Involves with Hard Money Bridge Loans
Unlike traditional loans, hard money loans charge higher interest rates. Also, borrowers might need a higher down payment compared to traditional loans and you will get a shorter time to repay.
Also Read,
Hard money bridge loans are mainly used by real estate investors planning to buy, renovate, and sell a property. These loans typically take less time to approve. But hard money loans come with certain risks as well like borrowers need to pay a higher interest rate and you must repay the amount within a short time. Also, you might need to make a huge down payment to grant the loan. So, we suggest you first consult with financial advisors and follow their instructions accordingly.Â
