by Alma Causey
Nobody lends money unless they have the guarantee that it will be paid back. Consider kids exchanging toys. No child will give away his toy to another kid unless he trusts the other kid to return his toy soon. Or he has a toy of the other kid that he is lending his toy to. In other words, that is what fair trade is.
Banks and money lenders are the same. They wouldn’t give away money like charity. Instead, they need proof that shows that you can pay them back, which is where the credit score comes into the picture. It shows how trustworthy your record is when it comes to repaying loans.
However, you don’t need a shiny credit score when securing a hard money loan. Such loans are transacted on the basis of your collateral. Here is an in-depth look into the matter:
Credit scores and traditional loans
Your credit score is a number between the ranges of 300-850. It is churned out by three chief credit bureaus named TransUnion, Experian, and Equifax. They produce your credit reports, which are then converted into scores by credit scoring models such as FICO and VantageScore.
Your credit score determines how often you make payments on time, in how many accounts you have a good position, and so on. This score never factors in your personal information such as marital status, race, national origin, gender, and religion.
A credit score that stands in between 600-750 is good. 800 points are excellent. But, you don’t have to worry about this score if you are not planning to get money via conventional money lending authorities.
What are hard money loans?
Private investors instead of banks fund hard money loans. This is why these loans are often called private money loans. These loans don’t look at your credit score or your potential to pay back the loan.
As opposed to numbers, hard money loans can give you money for your property. The value of your property plays an important role here as compared to your financial history or credit score. The amount of loan that you can get is determined by the loan-to-value ratio (LTV). Simply put, this is the ratio of the loan amount divided by the value of the property put forth as the collateral.
If you fail to repay the cash borrowed, the hard money lender will take and sell the collateral. This would be done to make up for his money.
The benefits of a hard money loan
First of all, hard money loans are not concerned with credit scores. So, this counts as the number one advantage of such loans. It is beneficial for those who have a poor financial history or a low credit score. Moreover, Hard Money Loan Investors tend to be quick in their approach, which is another benefit of hard money loans.
The lender is only concerned with the collateral and its value. Once that is clear, you can easily get a loan. In addition to the speed, hard money loans boast another benefit of being flexible as compared to traditional loan agreements.
Lenders don’t employ a set underwriting process. Instead, they evaluate each individual separately. Hence, depending on your situation, you may be able to request tweaks regarding matters such as the repayment schedules.
When is getting a hard money loan ideal for you?
Hard money loans are short-term loans, lasting no longer than six months or a year at most. It is best to get these loans if you are sure that you can repay the loan within the set time. In this context, some of the situations in which such a loan is the best include:
-Your credit score is not high
This one is a no-brainer. You should consider this loan if your financial history does not meet a traditional lender’s requirement. Also if your credit score is not high enough, but you need a loan, then a hard money lender can save your day.
-If you need a loan quickly
Banks and other lenders take a lot of time while they scrutinize your income history, credit score, and other relevant documents. Once that part is over, you get stuck in a document-signing rut. In contrast, hard money loans are approved at a faster pace. In certain cases, you can also get a loan within a day.
-You have a property investment deal
Hard money loans are best for people like real estate agents who want to fix and flip properties. In such instances, you can get a quick loan without having to involve the bank. You don’t need to engross yourself in a lengthy and cumbersome loaning process.
Summing up
Securing a hard money loan does not require a credit score. Such lenders are concerned with the value of your collateral more than your income stream or financial position. Moreover, hard money loans are easier and faster to get than conventional loans. All these factors make it an ideal alternative to bank loans.
About the Author:
Alma Causey is a Freelance writer by day and sports fan by night. She writes about tech education and health related issues. Live simply, give generously, watch football and a technology lover.
