Introduction
Hard money loans, ideal for business and because of being an entirely new subject, can be pretty confusing in some cases. And, whenever we feel bewildered, we end up giving birth to misconceptions.
The same happens with the hard money loans as well.
However, in this article, we are going to debunk them as elaborately as we can. And, we will also tell you the truth behind everything else. So, let’s get started with it.
5 Myths You Should be Aware About
Some of the myths we are going to debunk here might seem obvious. However, we have still talked about them here, as many others might not know much about it.
Anyway, let’s get started with it.
Myth – 1: Hard Money Loans Can Be Risky.
On the front, hard money loans might seem a little risky. After all, you’re getting an immense amount of money at a huge interest rate. What if it’s all a scam, right?
Well, fortunately, neither hard money loans are risky nor are they a scam.
Most of the hard money lenders tend to offer the money from their own pocket. Thus, if there is something risky attached to the entire plan, it won’t be good for them too, right?
Hence, in most cases, hard money loans don’t pose a risk. Nonetheless, we’d still request you to ensure that you are choosing the right lender for your purpose.
Myth – 2: There’s No Need to Get Documents.
Unlike the traditional options, hard money loans get accepted much quicker than usual making them suitable for real estate investments. And, that’s what makes most people think that they don’t require any documentation.
However, that’s not true.
You might have to provide a lot more documents than what you generally do in a traditional loaning system. However, just make sure to keep a copy of all of them.
You may need them for proof later on.
Myth – 3: It’s Needed in the Time of Desperation.
Hard money lenders tend to be much more lenient than most traditional lenders and you can calculate how much you can lend by using hard money calculators. That’s what makes most people think that you won’t need them as long as you are not desperate.
Nonetheless, that’s not true.
A lot of individuals consider getting hard money loans for the following reasons:
- It has a much higher and faster approval rate.
- There is no need to maintain any credit score or anything with it.
- The requirements of the loan are much more flexible and easy to comply with.
- Hard money loans can easily be used to refinance a property or purchase it.
- In most cases, there’s no limitation to the number of loans you can get from them.
Due to this reason, hard money loans have become extremely popular amongst people who’re working as an independent contractor. It can also be ideal for people whose DTI ratio is much higher than usual. They can comfortably take care of their finances with it.
Myth – 4: It Has to Be Paid off in a Year.
Like any other loaning system, hard money loans come with specific deadlines and rates as well. And, you have to meet the same if you don’t want to get fined by the lender.
However, the deadline isn’t always stuck at 12 months.
It can be anywhere between one year to five years. Thus, once you request for the money, you can negotiate the term or duration as you feel. However, the period might depend on the cash amount you are opting for. So, make sure to do your calculation before doing anything else.
Myth – 5: Hard Money Loans are More Expensive.
Most people consider the interest rate of hard money loans to be extremely high. Hence, even if you get a small amount of money, it might increase into a massive sum of cash in a while.
However, again, it’s false to some extent.
Yes, the interest rate of a hard money loan tends to be higher than a conventional option. But, it isn’t as high as you might be thinking, truth be told.
However, if you still feel that you might get entangled in something too complex, it might be better to make a plan. You can do that all by yourself or opt for a financial advisor.
Either ways, always try to have a plan A and B when you are opting for hard money loans. It will ensure that you are always on the safer side, no matter what.