If you’ve never used a hard money loan before, you might still have heard some of the most common myths about this type of financing.
We’re here to clear those up.
Common Hard Money Loan Myths
- Hard money is for people with poor credit
- Hard money loans have high interest rates
- Anyone can get approved for hard money
Let’s take a closer look at each of these hard money loan myths.
#1. Hard money is for people with poor credit
Hard money loans are for people who need quick approval – especially investors – so they can pounce on a great deal. While some people with less-than-perfect credit can still qualify for hard money loans, they’re not targeted at those with poor credit. The reason is simple: Hard money lenders do asset-based lending – and that means that credit isn’t necessarily a deal-breaker with these types of loans (like it would be with conventional lending).
#2. Hard money loans have high interest rates
Most hard money lenders are very competitive with interest rates. And to offset the sometimes-higher interest rates, the loans are typically shorter – and they’re a lot faster to close, in most cases. Your interest rate may be higher than what you’d pay at a bank, but you’re also likely to get approved a lot faster, and your loan will be for a much shorter term than it would be with a traditional lender (we’re not looking at 30 year loans in the hard money sector).
#3. Anyone can get approved for hard money
You still need documentation to get a hard money loan, but not the same documentation you’d need to get a traditional loan. The most important thing for a hard money loan is typically a home appraisal, because it verifies how much the property is worth and can be a starting point for the homes after repair value, or ARV.
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