The requirements for a second home, such as a vacation or investment property can be even more stringent. Usually, you need a credit score of at least 640 to 700, depending on the lender.
Additionally, lenders can always make their requirements more robust, meaning their minimum scores and income requirements may be higher.
There is an alternative to traditional mortgages. Hard money loans work differently and can help you access the money you need more quickly. If you’re wondering if a hard money loan is right for you, here is what you need to know about these offerings.
Hard Money Loan Requirements
Traditional mortgage lenders look at everything from your income to your credit scores when making a lending decision. They examine your ability to repay the loan closely, so the process is time-consuming.
Hard money lenders use a different approach. Usually, their main focus is whether the property provides enough collateral to repay the balance should you default. Issues like credit scores and even income are less important.
Additionally, a hard money loan is generally shorter term. Repayment is commonly expected within one to five years. However, the interest rates are usually higher than traditional mortgages (reflecting the increased amount of risk the lender takes on) and can reach double digits.
Why Use a Hard Money Loan?
Since the lender is less concerned with your ability to repay, the approval process is much shorter. This lets you access funds quickly. Plus, if you have a low income or poor credit scores, that won’t be a large factor in their decision.
Hard money lenders focus on the value of the collateral. As long as your collateral is worth enough, approval is fairly easy. This can be ideal for purchasing second properties, like vacation homes or real estate investments, where traditional lending requirements are more stringent.
Further, a hard money loan is more flexible. Each application is reviewed individually and certain details, like the repayment schedule, can be adjusted.
For example, North Coast Financial offer hard money loans to real estate investors, including house flippers. Using a hard money loan to flip houses can be a great approach. The approval process is quick, and you can repay the loan in full when the renovated house sells, making higher interest rates less relevant.
Should You Use a Hard Money Loan?
Whether a hard money loan is right for you depends on your unique situation. Since the interest rates are higher, it isn’t an ideal product to use for the long-term. However, for short-term needs, like house flipping, or if you can refinance fairly quickly, it can let you get cash fast.
You can do a search for private money lenders near me and see if there are companies in your local area. Otherwise, focus on companies that serve large customer bases, including national options. Look at their rates and requirements, and see if you could reasonably repay the loan using those figures. If so, then a hard money loan may be a good choice, particularly if you can’t secure a traditional mortgage.
Have you ever used a hard money loan? Tell us about it in the comments below.
Looking for more great articles? Give these a try:
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