If you’re like many people who have never taken out a hard money loan, you’ve probably heard all kinds of myths about them – but here, we’ll cover three of the most common and debunk them so you know all the facts.
3 Hard Money Loan Myths That a Lot of People Believe
Some of the most common myths about hard money loans include:
- You don’t need any documentation for a hard money loan
- Only people who are desperate take out hard money loans
- Hard money lenders aren’t as careful as big banks are
Here’s a closer look at each of these hard money loan myths.
#1. You don’t need any documentation for a hard money loan.
The truth: You definitely need documentation to take out a hard money loan, but you don’t necessarily need as much as you would with a conventional lender. You’ll still need to show that you’re good for repayment, and that what the lender is letting you borrow is a good investment – nobody wants to take on a huge risk.
#2. Only people who are desperate take out hard money loans.
The truth: A lot of investors take out hard money loans. It has nothing to do with desperation, though – it has everything to do with convenience. Borrowers want the benefit of getting rehab or construction money, and they want to be able to close on deals quickly, without waiting to wade through red tape like they’d have to with a conventional lender.
#3. Hard money lenders aren’t as careful as big banks are.
The truth: Hard money lenders often work with their own money, so they’re less likely to approve deals that really could fall through. They’re not like big banks with billions at their disposal (not usually, anyway), which means they’re very familiar with local markets and understand after-repair value much better than conventional lenders seem to.
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