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Why do investors seek hard money loans instead of traditional bank loans?

Investors and developers seek hard money loans because they need money fast. Unlike bank loans that can take 30-45 days to get funded, hard money loans can usually be funded within one week. This can make all the difference when an investor is trying to purchase a property with competing bids that requires a quick close.

Another reason people get hard money loans is because private lenders aren’t concerned with the borrowers credit history or income, but instead base loan decisions on equity. So folks with credit problems, tax liens or past bankruptcies that would get turned down by a bank are able to obtain the financing the need through hard money lenders.

What are the advantages to hard money loans?

The main advantage to hard money loans is the speed of service and the ability for people who normally couldn’t get financing to obtain loans. Both new and seasoned real estate investors that use hard money loans as a part of their investment strategy can leverage the ease and speed of this financing option to purchase properties, flip homes, increase cash flow and achieve their investment goals.

What are the main differences between hard money loans and bank loans?

  • Fast Approval and Delivery of Funds – At AFS we can approve your loan in few hours and get you the cash you need in 3-5 days. Banks typically take 30-45 days or longer. 
  • Approvals Based on Equity Not Credit or Income – No matter what your personal credit history, AFS can get you funds based on the equity of your asset property with up to a 70% loan to value ratio. 
  • Shorter Terms – Residential hard money loan terms typically last from 6 months to 1 year. Commercial property loans may have slightly longer terms lasting up to 3 years. 
  • Higher Interest Rates – Hard money loans have higher interest rates than bank loans. Most private money loans range from 7.5% to 15% depending on the terms, the loan to value ratio and the property itself. 
  • Less Paperwork – Since hard money loans are funded by private lenders and based on equity, the application process is much simpler and requires much less paperwork and documentation. 
  • Financing for Distressed or Below Market Properties – Hard money loans are a great option for investors looking to purchase, fix and flip distressed properties or those below market value that a traditional bank would not finance.

Are hard money lenders reputable?

Not all hard money lenders are created equal. Like any industry there are companies, like AFS, that deliver top notch services and products and there are companies that do not. It’s important for borrowers to do their homework and choose lenders with plenty of experience, a good track record, who are licensed in the industry and are honest, upfront and trustworthy.

We pride ourselves at AFS on being efficient, transparent, responsive and reliable. With over 25 years of experience in southern California’s real estate industry, we have worked with hundreds of satisfied clients. We are fully licensed by the National Mortgage Licensing System and the California Bureau of Real Estate as well as members of the Southern Region Real Estate Association and the California Multiple Listing Service.

Can borrowers using hard money loans transition to bank loans?

Yes. Hard money loans are often used when financing is needed more quickly than bank can provide or for fix and flip properties that a bank won’t finance until after the repairs have been made. Investors use private money up front to secure the property and may transition to a traditional bank loan at a later date.