Being a homeowner comes with many responsibilities and benefits. One of the major perks of being a homeowner is that you have more leverage when working with lenders. Of course, the more leverage you have, the better deal you’ll be able to get on your loan term and interest rate.
As a borrower, trying to secure a loan with a poor credit score is equivalent to an athlete taking the field of play with an injury. In other words, a low credit score is a great hindrance. However, even with poor credit, if you’re a homeowner, you may qualify for a hard money loan. Continue reading to learn more about hard money loans and whether they’re a good option for you.
What is a hard money loan?
Of all the types of loans, hard money loans are the best for people with a low credit score and a lot of home equity. Home equity, of course, is your financial stake in your property as a homeowner. Your down payment and monthly payments on your home loan all purchased more equity in your home. The more home equity you have, the more financially viable your home is for you.
Hard money loans are a type of loan that uses your property as collateral to secure the loan. Hard money lenders determine your worthiness as a borrower based on the value of your property. The higher the value of your home and the more home equity you have, the better your chances are of securing a hard money loan.
Traditional banks don’t issue hard money loans. However, private mortgage lenders such as individuals and mutual funds often feature hard money loans among their main financial products.
Things to consider before taking out a hard money loan.
As you read in the previous section, hard money loans are an excellent option for borrowers whose credit score won’t allow them to get a conventional loan. Even though private money lenders don’t judge borrowers by their credit score, private mortgages have higher interest rates than conventional loans. They also come with a shorter loan term. Private mortgages and loans only come with a loan term of 1-3 years. Not only do they help you with your initial mortgage, but they can also assist you on your 2nd mortgage loan.
Another crucial factor to consider before taking out a hard money loan is that you could lose your home equity or even your home. When you use your home as collateral, you always run the risk that your lenders will take it. So it’s essential to make all of your mortgage payments when you take out a private mortgage loan.
When should you get a hard money loan?
Even though hard money loans are a great option for homeowners with a low credit score, they’re not the best option for every case. There’s a reason that hard money loans are also called “loans of last resort,” and that’s because you could lose your property if you don’t make your monthly payments. However, there are some cases where a private mortgage loan is your best option.
If you own an investment property in need of renovations, a private money loan is a great option. If you live in the D.C. area, you know Alexandria roofing contractors can be expensive. Even though top roofing contractors like MLM Home Improvement allow customers to make monthly payments, getting a hard money loan gives you a large enough budget to handle all of your home improvement needs.
If you spot a prime investment property at a great price, waiting on the time it takes to close on a conventional loan could cause you to lose the property. The process of getting a private mortgage is much quicker.
Be wary of hard money loan scams.
Sometimes scammers disguise themselves as lenders as a way to get access to your finances, but private money lenders won’t call you to advertise their services. Scammers rip people off for billions every year, and phony phone calls are one of their tactics. If you feel like you’re being targeted by scammers and want to learn how to find out who called you, visit futureinsights.com.
Hard money loans are one of the best types of loans for real estate investors, business owners, and homeowners with a low credit score. What’s owning a home if you can’t use your home’s value as an investment tool?