Should You Get a Hard Money Loan? Here’s Why or Why Not
4 min read
Should You Get a Hard Money Loan? Here’s Why or Why Not
In times of financial hardship, loan companies are most people’s first call. As long as an applicant has a good credit history and can afford to repay a loan, then more often than not they will be accepted in a matter of minutes. Some loans can even be paid into a person’s account in less than half an hour. Loans have never been more accessible than they are today.
If you are planning on taking out a loan, then you may have heard of hard money loans. This post will explore them and tell you whether or not it’s a good idea for you to get one.
What Is a Hard Money Loan?
A hard money loan is a loan that requires security, typically in the form of property. In order to take out one of these loans then you will likely need to own property. A hard money loan is calculated according to the value of the property that is being used as collateral, not the borrower’s salary or credit history (though credit history is still important). More often than not, hard money loans are issued by private companies and individuals. The rules regarding hard money loans are the same wherever you are in the United States, whether you’re borrowing from a CA hard money lender or one from NY, or LA. Hard money loans are a last resort for a lot of people, because of the collateral that’s required. Despite the large collateral needed, they are very good loans for people who need fast money.
Should You Get One?
Should you take out a hard money loan? The answer to that question really depends on what you need a loan for. If you want to take out a hard money loan so that you can go on vacation or buy yourself a luxury item, then the answer’s a firm no. If on the other hand, you need one for something very serious that you can’t get money for elsewhere, then yes. You should always be sure that you are able to repay a loan before you take one out so that you do not default.
Should You Not Get One?
If you are not confident that you will be able to repay your loan on time or you are not sure that the reason you are taking one out is good enough, then no you shouldn’t take out a loan. You should be aware that because you are putting your house up as collateral for a hard money loan that if you fail to make repayments on default, then your house can be taken off of you by the lender. You have no legal recourse for getting your property back once it’s been taken either because you will have signed a lending agreement.
Preparing for a Loan
If you do plan on taking out a loan, then you need to prepare. One of the main things that you need to do to prepare for your loan is to take the time to work out how you are going to afford to make repayments. As mentioned already, failing to make repayments on your loan can result in you losing your house. An exceptionally high credit score isn’t technically required for a hard money loan, although your score will have to be reasonably good. If it’s too low then lenders won’t want to lend to you.
Building Your Credit Score
If your credit score is very low, then before applying for a loan it might be worth taking the time to rebuild it. Building one’s credit score is relatively easy, as long as one uses credit building cards, and services, and repays one’s debts on time. You may want to ask your home energy supplier to connect your home’s utilities to your credit score. Some energy suppliers will be more than willing to do this. By having your energy supplier report to the credit bureau, every time you make a payment toward your energy bill, your credit score will go up.
Ensuring Repayments
Once you do take out a loan, you need to make sure that your repayments are made on time each month. As has been mentioned abundantly throughout this post, failing to make repayments will result in your credit score dropping, and the lender you have borrowed from taking possession of your home. The lender will then sell your house, keep the money that you have borrowed and any admin and marketing costs, and then return the rest of the money to you. You will also have a default marked on your score, which will prevent you from being able to borrow money for a long time.
If you want to take out a hard money loan, then as long as you are confident that you can repay it, then you have no reason not to. Because you put your house up as collateral, you need to be confident that you can make repayments. If you can’t then don’t risk it.
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