What is a hard money loan and how a hard money loan works

Posted by Chris Goulart on November 12th, 2020

Many people and investors are searching for financing these days.  While traditional lending institutions have tightened their standards, there are other options for those in need of funding.  For those looking to alternative sources, Alameda hard money loans are one option to consider.

Hard money loans are loans secured by real estate. They are typically used for short-term funding to bridge your short or medium-term financial needs. These temporary or medium-term loans are primarily used in real estate transactions by investors with the funds coming from individuals rather than from the banks!While interest rates are higher, funding times are typically quite fast and guidelines less stringent than banks. 

While most hard money loans are short term solutions – say one to three years in term – there are also long-term hard money loans available.  For Alameda hard money loans, you can expect terms to be available for up to 30 years in some situations.  While interest rates are typically higher than the banks, hard money loans still fill a niche that investors require – and can provide long term stability solutions rather than being only short term bridge loans. 

Hard money loans may be needed by property owners who plan to renovate and resell an investment property. In these types of transactions they can use the property as collateral for the short term financing. (Hard money loans in Alameda County are for one to three years typically). These shorter terms allow investors to leverage their funds.  Exiting the loan as soon as possible helps to maximize the profit potential on any given transaction. The charges for hard money loans is typically higher compared to financing available through banks or government lending sources. However, the risk is also higher for the lender that offers the financing due to the less stringent underwriting process and quick funding turn times. 

Conclusion

The significant advantage of hard money loans in Alameda County is the approval process. It is often much quicker than applying for a mortgage or any other loan through a bank. The private investors can make their decisionsquickly and are typically more concerned about the property value than a borrower having spotless credit. One more benefit for the borrower is that the hard money lenders don't use a traditional, standard, underwriting process. They evaluate the property as per the present situation and then negotiate adjustments regarding the repayment schedule for the loan. In this manner, if the transaction makes sense, there is often times a way to provide funding required.  While hard money loans are not a solution for everyone, they do provide a niche source of funding for specific situations and property investors.  Ensuring that the trade off in cost is beneficial is important for the borrowers of these types of loans, but used properly they are an effective tool to provide leverage in the real estate markets. 

Authors Bio

This article is written by All California Lending- a leading real estate lending business specializing in personalized service relating to hard money lending in Alameda County.