According to survey results, 23% of adults said that investing in real estate is the best way to build personal wealth. But only 12% bought real estate in 2022.
Real estate comes with a high barrier to entry. You need a sizeable amount of capital to enter the market. Especially since, here in California, the real estate market is one of the most expensive in the country.
Hard money loans offer California real estate investors the flexibility and agility to take advantage of opportunities in the market without this problem. Find out how below!
What Are Hard Money Loans?
Hard money loans are a form of asset-based lending, typically provided by private investors or companies and used by real estate investors. They supply short-term loans that are secured by the real estate property that the borrower is purchasing.
Hard money loans are also sometimes known as bridge loans. The terms can be interchangeable, but hard money loans and bridge loans have some distinct differences. Hard money loans can cover things like renovation expenses and other real estate investment costs.
Bridge loans are primarily there to “bridge the gap” when investors or homeowners want to sell a property to acquire another but can’t secure capital from the sale quickly enough to make an offer on the new property.
Fast Approval Process
One of the biggest challenges when it comes to buying real estate is timing. If a hot property comes on the market, you must move fast. The quicker you can secure funding, the sooner you can make an offer.
Traditional bank mortgages can come with lengthy approval times. The approval process takes an average of 49 days.
However, if you’re applying during high-volume months, it could take up to 60 days to get approved. In the meantime, the seller may have received a competitive offer from another buyer, and you could miss the investment opportunity.
Hard money loans allow you to move fast. With a hard money loan, you can receive funding within 7-14 days.
The approval process for hard money lending is simpler and more streamlined. Because hard money loans are asset-backed, the lender doesn’t have to carry out income verification or appraisals. They also don’t have to carry out credit checks.
Most traditional bank loans come with semi-fixed terms. Mortgages are financial products built for the masses.
In many ways, they are a one-size-fits-all solution. While you may be able to adjust certain terms, there’s only so much tailoring you can do.
This can force you into accepting terms that don’t match your investment goals. You might also have to spend a lot of time shopping around and comparing different mortgage options.
Hard money loans usually come from companies or private individuals that have less rigid lending criteria. Hard money lenders can typically tailor their loan terms to meet your needs as a real estate investor. They may also have a wider variety of mortgage loans, and the terms are developed with real estate investing in mind.
For instance, if you’re in the business of real estate renovation, you can access fix and flip financing that’s designed for investors who deal with fixer-uppers. These kinds of real estate investors often need quick cash to close deals and want a short-term loan they can pay down without steep prepayment penalties.
Variable Credit Score
Here in California, traditional lenders require a credit score of 650 or more.
Unlike traditional mortgages through a bank, hard money loans don’t require you to have a spotless credit record. If your credit score has taken a few hits, this is perhaps one of the biggest advantages of hard money loans.
With traditional mortgages, the bank has to verify that you can repay the loan. A poor credit score could disqualify you or trigger high interest rates.
Hard money loans are backed by a real estate property you already own, or which you’re going to purchase. If you default on the loan, the lender has the asset to fall back on as security.
Therefore, a poor credit score won’t disqualify you from taking out a hard money loan. However, a reasonable credit score could still work in your favor with hard money lending. Although lenders don’t base eligibility on credit histories, a track record of being able to pay back debt may result in lower interest rates.
Cater to Diverse Property Types
Because hard money mortgages are typically tailored to real estate investors (rather than regular homeowners), these loans often cater to property types that traditional mortgages don’t cover. For example, if you want to buy and flip a distressed property, you may run into difficulties securing a regular mortgage.
Hard money lending is designed to provide financing for these types of purchases, as well as unconventional or commercial properties.
Facilitate Advantageous Real Estate Purchases
The advantages of hard money loans can allow investors to move quickly on real estate investment opportunities. Instead of waiting for approval for a mortgage that doesn’t fit your needs, you can respond to market opportunities fast. With speedy approval times, you can make offers before the competition steps up to the table, and snag properties that may have otherwise passed you by.
This can be advantageous in competitive, fast-moving real estate markets like California.
If you want to sell a property to finance a new real estate purchase, you can apply for a bridge loan. This type of hard money loan is specifically meant to give you the liquidity you need. You can take out a short-term loan with hard money lending to facilitate the initial transaction, and later convert this into a traditional mortgage if you desire.
PB Financial Group Specializes in Hard Money Loans
Hard money loans offer investors faster financing with terms that are tailored toward real estate investment transactions. Because they are collateral-based, you also don’t need a spotless credit score to be approved for a hard money loan.
Here at PB Financial Group, we have been serving California residents since 2006 as the premiere hard money lender and specialize in providing real estate investors like you with the capital they need to finance their purchases. Through our hard money mortgage loans, you can access streamlined services, aggressive rates, and quick closings.
Contact us today to get started.