Five Myths About Hard Money Lenders

There are several situations where a conventional bank loan is not the best option for what you are trying to achieve. Maybe your credit is not where you need it to be, or maybe you are not looking for a thirty-year commitment. Whatever the situation, you may have been referred to a hard money lender.

While you may be hesitant at first because of what you have heard about these types of loans, they can be advantageous to your cause. Below are myths debunked about the hard money lender business, and why you should consider it. 

Myth #1: Their interest rates are sky high. While a hard money lender is taking on more risk because of the type of loans they distribute, the interest rates are no more than 6 to 7% higher than a conventional loan. If you live in a region with plentiful lenders, the competition alone will keep interest rates lower.

Myth #2: They’re shady. While every type of business has a few bad apples, most hard money lenders are simply looking for good investments with good people. They are not hoping to foreclose on properties, and can be a great option if you are financially responsible enough to handle the terms of the loan.

Myth #3: They are only good for commercial property. Yes, commercial properties are more likely to use a hard money lender than a single family might use one to purchase a residence. However, if you have just been through a short sale or a foreclosure, but have equity in other property assets, a hard money loan may be just what you need to purchase your next home. When a bank says “no” because of your financial history, a hard money lender simply takes into account your property worth, and might give you a “yes!”

Myth #4: Whatever your collateral is worth is what you will receive in the loan. Typically because of the risk involved with these types of loans, a hard money lender is more likely to offer between 65% to 75% of the property’s assessed value in the loan. While this can help you financially to achieve your goals, it may be wise to also consider additional financial resources like investors or other liquidated assets.

Myth #5: Reputable lenders are hard to find. This is simply not true. A directory website for your city or state can help you locate several within your area, or you can always attend networking events aimed at real estate investors. If you have already trusted real estate professionals in your network, they will certainly be able to point you in the direction of a hard money lending company, as well as help you decide if it the right move for you.