The Pros and Cons of Hard Money Financing
People wanting to buy a home may have financial problems or previous issues that will make conventional financing difficult. Other borrowers may have little-established credit for conventional financing, creating a barrier to obtaining a home they need to build a credit history. These are just some reasons why hard money financing could be a better option. There are pros and cons to using hard money for financing a home, so let’s review them:
The biggest advantage of hard money financing is that it opens up opportunities for homeownership for people with imperfect or inadequate credit. Those people may have attempted conventional financing without success. Hard money investors can help those with:
- Low credit numbers or credit problems due to previous financial issues
- Those with records of bankruptcies or foreclosures
- Borrowers who are late on existing mortgages or loans
- People who are self-employed or for other reasons have fluctuations in income or unconventional income sources
Another advantage of hard money financing is the ability to approve borrowers much more quickly than a conventional lender. There are far fewer documents needed to complete hard money financing. Closing can happen in days versus weeks for conventional loans. This can be an advantage during a competitive housing time so borrowers don’t lose an opportunity to get the home they want or need.
There are some potential disadvantages to financing using hard money. They include:
- Hard money loans have higher interest rates than a conventional loan. Investors are accepting a higher risk by providing financing to persons with less than perfect credit or previous financial difficulties. The investors accept that risk for a higher rate of return.
- Hard money is a common technique for home flippers and short-term investors to get the money they need for short periods of time. This type of financing might turn off some sellers.
- Investors who provide hard money have limits on the loan-to-value (LTV) ratio they will accept, which can be as low as 55%. Therefore a borrower needs to have a larger down payment available that might be needed with conventional financing.
Regardless of your financial issues, contact AHL Hard Money Network if you are in need of hard money financing for your home or business. You can call or text us today at 813-668-9919.