Hard money loans

Hard money loans are short term private loans that are negotiated based on the value of the property being purchased. These loans are usually for business purposes only and are used to secure funding to close on a distressed property, renovations to help flip a house, or to bridge a loan until the borrower can secure a less expensive loan.  

Key strengths: 

  • Fast: Unlike normal loans you can get a hard money loan as quickly as next week 
  • Less documentation and less red tape 
  • Higher chance of approval: Even if you have had losses in your past or a strange form of income, because the loan is based on collateral you could still be approved for your loan 

Key Cons 

  • Expensive: because these loans are private, the interest rates on these loans are almost always going to be higher than their normal loan counterparts who can simply get their money from the federal reserve or their own depositors 
  • Complicated Terms: Because the lender can set their own terms, there is more of an onus on you the borrower to make sure the contract works for you. Be sure that you know exactly what is in this deal before proceeding  

Traditional Loans

Normal loans are long term federally regulated loans developed by major banks and corporations that are negotiated based on the credit and income of the borrower. They are regulated by Fannie Mae and Freddie Mac guidelines. These loans are usually for borrowers trying to purchase their primary residence.  

Key Pros: 

  • Cheap: Because of the long term nature of these loans, if you qualify, you will often get the best rate available  
  • Protection: because these loans are regulated, a lot of the terms of the deal are designed to protect you from predatory loan practices and from taking on a loan you can’t afford 

Key cons: 

  • Hard to qualify: If you have any loss history, bad credit, or inconsistent forms of income you probably will not qualify for a normal loan. 
  • It takes forever: even if you know that you will qualify, the review process will take a minimum of 60 days just to go through and it may take even longer for you to receive your money