Hard money loans, which are often called private loans, are a better choice than traditional bank loans are for many people – but they’re not right for everyone. If you’re buying a home at market value, it doesn’t require any work and you’re ready to pay a 30-year mortgage, a hard money loan won’t do you any good; it isn’t designed for you.
These types of loans are short-term, which means people borrow a significant amount, do what they need to do, and typically roll the balance into a traditional mortgage. In other cases, people who borrow hard money simply sell the homes they borrowed against and repay the loan in full.
The Big Differences Between Private Loans and Bank Loans
How Much You Can Borrow
Private loans: Because private loans are generally short-term, asset-based loans, you can borrow against the after-repair value of a home.
Traditional mortgages: Generally, you can only borrow 60 to 80 percent of the purchase price, which is going to be significantly lower than the after-repair value if you’re rehabbing a house.
Credit Scores and Loans
Private loans: Your credit score does matter, but with most private loans (including those from Paces Funding), there’s no minimum score required.
Traditional mortgages: Your credit scores are a big deal to big banks. They may require you to have a credit score within the high 600s or even within the low 700s in order to qualify for a traditional mortgage.
The Time it Takes to Get Funding
Private loans: In some cases, a private loan can be funded right away (we’ve done it as quickly as one day in the past). It usually takes between a week and 10 days, though, to make sure the appraisal is done and the title is clear.
Traditional mortgages: It usually takes several weeks for a traditional lender to part with its money – and sometimes it takes longer. They will need to appraise the home, follow strict protocol and regulations, and make you jump through hoops to approve your financing.