Differences Between a Hard Money Loan and Traditional Mortgage
There are many differences between a traditional real estate mortgage and a hard money loan. Both have their advantages and disadvantages and should be considered in conjunction with what you’re trying to accomplish. For example, investors typically seek hard money loans when they want close quickly on a house they are going to flip or purchase a property that will be used for rental income.
When to Use a Hard Money or Mortgage Loan
If you are looking for a home for you and your family, you will typically get a mortgage loan. Sometimes, the choice of what type of loan you end up with depends on how big a risk lenders feel they are taking. If you already have a home and don’t plan to sell it, you may need a hard money loan, which has additional qualification requirements and may carry a slightly higher interest rate. Since you probably already have an existing mortgage, it costs more to borrow money for your new house.
As seen in the example above, mortgage and hard money loans also differ in terms of purpose. Hard money loans follow the adage that it takes money to make money.
If you take a hard money loan for investment purposes, you will likely use it to buy land or property to grow your business or improve your current business property. Investors use hard money loans to buy an office building, rent equipment or hire and train new employees. Perhaps you need money to rent a space for your retail startup or to buy an industrial facility to manufacture a new invention. These are all examples of reasons people use hard money loans to fund their short-term or long-term goals.
What if I Want to Flip a Residential Property?
If you don’t currently own a home and plan to live in the property at least two years, a traditional mortgage will be your best option. However, if you plan to fix and flip a residential property, chances are you need a hard money loan. A major advantage of hard money loans in the speed in closing, loans that could take a bank months to close can usually be closed in a week with a hard money loan.
Some flippers keep the property, and the loan, long term and rent it out to cover the hard money loan as well as produce additional income. Just keep in mind that hard money loans are shorter than regular mortgages. You may have to pay one off within one or two years.
Before approving you for a hard money loan, the lender will consider the risks associated with the property, including how much it may cost to make repairs. Your credit is another factor that comes into play but may be less important than in a traditional mortgage application.
To summarize, for home buyers, a traditional mortgage can give you the money you need to make the purchase. For real estate investors and business owners looking for working capital, a hard money loan can solve your cash flow concerns.
Get Approved for a Hard Money Loan with Wildcat Lending
Wildcat Lending provides fix and flip hard money loans for real estate investors in Texas and Tennessee. A hard money loan is the perfect solution to ensure you don’t lose that investment opportunity to someone else. Hard money loans are a quick and safe option for real estate investments. Contact Wildcat Lending today to start your application.