Hard Money Loans vs. Mortgage Loans
Navigating the world of real estate investment financing can take time and effort. Two popular options often come into play are hard money loans and mortgages.
It’s crucial to know the differences between these two funding options. It will help you make informed decisions based on investment goals.
Pros and Cons of Hard Money Loans vs. Mortgages
Both options have pros and cons. Your best choice depends on your needs and situation.
Feature | Hard money loan | Mortgage loans |
Loan purpose | Short-term projects | Long-term projects |
Speed | Fast | Slower |
Requirement | Property Value | Credit checks, Income |
Interest rates | 8% to 15% | |
Loan terms | 6-24 months | 15-30 years |
Down Payment | Higher | Lower |
Differences in speed and flexibility
Close deals lightning-fast
Traditional bank loans are slow and can take weeks or months to fund.
Hard money loans are different and often fund deals in several days to a few weeks.
Hard money lenders focus on the value of the collateral, not your credit score.
The streamlined process gets you to the closing table fast.
Flexible terms for your unique needs
Banks have rigid requirements. They don’t understand the unique needs of real estate investors.
Hard money lenders offer flexible terms and customized loan conditions. They will work with you to structure a loan that meets your needs.
Differences ARV, LTV of Hard Money vs Mortgages
Hard money lending assesses the property’s potential value after renovations. This means we factor in the increased value that your improvements will bring.
Traditional banks have a limited view when it comes to property value. They focus on the “here and now.” They often miss the potential for increased value through renovations.
Differences in Experience vs Credit Requirements
Hard money lenders care more about experience and profit than a borrower’s credit history.
In contrast, traditional mortgages depend on the borrower’s credit score, history, and stability finance.
Differences in interest rates
Hard money loans have higher interest rates (8-15%) than mortgage loans. This reflects the increased risk taken on by private lenders.
Differences in Loan Terms
Hard money loans are typically shorter, ranging from 6 to 24 months. This aligns with the short-term nature of projects like fix and flip or renovations.
Traditional mortgages for long-term homeownership have long terms, usually 15 to 30 years.
Differences in Purpose Use
Hard money loans are well-suited for a variety of real estate investment strategies, including:
- Flipping houses: The quick funding and shorter terms are ideal for rehabbing and reselling properties.
- Bridge loans: These loans can provide temporary funding until a permanent option is secured.
- Rental property investments: Hard money can buy or renovate rental properties, even with bad credit.
Mortgage loans are primarily used for:
- Purchasing a primary house: They offer long-term stability and lower interest rates for homeowners.
- Buying rental properties: Mortgages are slower but provide long-term financing for rentals.
Frequently Asked Questions
What are the key differences between hard money loans and mortgage loans for real estate investors?
Hard money loans have faster approval and more flexible terms. Traditional mortgages have lower interest rates and longer repayment periods.
How do hard money loans help real estate flippers fund their projects?
Flippers can get funds based on a property’s after-repair value (ARV), which lets them quickly buy and fix up properties.
Can I use a hard money loan to buy a rental property as an investment?
You can use hard money loans to buy a rental property or invest in real estate. They are a fast, flexible financing option.
What are the typical rates and fees for hard money loans vs. traditional mortgages?
Hard money loans have higher rates and fees. They have shorter terms and a higher risk tolerance.
How does the hard money loan approval process differ from a conventional mortgage?
Hard money lenders care about the property’s value and the borrower’s experience. This leads to quicker approvals than with traditional banks.
Sandy Yuen is a certified mortgage broker. In 20 years of hard money lending, she’s funded over $450 million for investors. She specializes in fix-and-flip, bridge, and construction loans.
She also funds projects like second homes, apartments, and commercial and shopping centers. Sandy, a trusted lender, served over 500 clients in Irvine, CA. She is known for her fast approvals, flexible rates, and high transparency.
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Local & National
While we are based in Southern California, our reach is national. For the exception of a few states, we have funded loans all across America in some of the largest and most active metropolitan areas.
We have also worked with clients ranging from local, national, to global, helping them secure the right loan for their project.
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