Is a hard money loan the right option for someone new to the field?

In a word, yes. A hard money loan is just right for a new investor in residential rehab as it is for an old hand. It’s the right option for anyone who has a promising investment lined up and needs a short term loan. Several common loan types include:

  • Residential rehab
  • Fix & flip
  • Bridge loans
  • Cash-out refinancing
  • Buy and hold
  • Distressed property
  • Ground-up construction

Determining if a Hard Money Loan is Right for You

Do you have limited, damaged, or nonexistent credit history?

If so, a hard money loan is probably the right choice. In fact, hard money loans can be especially beneficial to new investors because the loan approval is based much less on your credit history than it is on the value of the investment property and the value it is estimated to have at the time of your post-renovation appraisal. So, if you have a limited, damaged, or nonexistent credit history, you’ll have a much easier time working with a hard money lender than you would with a conventional lender like a bank.

Are you looking for a long-term mortgage for a primary residence?

If so, a hard money loan is probably not the right choice. Hard money loans are better suited to short term investment, residential rehab developers, and construction loans for new developments. With a long-term mortgage for a primary residence, it’s better to take the extra time to secure approval through a conventional lender and enjoy lower long-term interest rates.

Is your development time-sensitive?

If so, a hard money loan is probably the right choice. In fact, most real estate investments are time-sensitive. Markets change quickly, and when opportunity knocks, it usually doesn’t hang around waiting for someone to answer the door. The quick approval process with a hard money loan can keep your projects in motion, rather than getting stuck in a weeks, or months-long approval process through a conventional lender. By then, it’s possible you could have already renovated your property, refinanced, and moved on to your next development venture.

Do you plan to pay off your loan or refinance with a permanent mortgage in 3 to 12 months?

If so, a hard money loan is probably the right choice. If you’ve renovated the property with hard money, the post-renovation appraisal should, of course, have increased- hopefully enough to refinance the remaining balance on your original hard money loan as well as the closing costs on the property- without spending any more out-of-pocket on the investment. Again, this application is suited to residential rehab developers.

Hard Money Loans: Ideal for Short-Term Development

The benefits of a hard money loan are the same for the developer who’s just delving into the industry are the same as they are for the lifelong real estate entrepreneur. Determining whether a hard money loan is the right choice for you is a decision based on the nature of your investment, not on the amount of experience you have as a developer.

Socotra Capital is California’s premier hard money lender for your real estate investment needs. If you think a hard money loan is the right choice for your investment, contact us today to get started on your quick approval!