5 Things You’ve Heard About Hard Money That Aren’t True
How much do you know about hard money lending? If you are like most people, not much. A typical consumer’s knowledge of hard money extends no further than the little bit of information picked up from blog posts written by financial advisors who recommend against money loans.
It goes without saying that there is a lot to learn about hard money. But how a person learns is important. Like any other topic, there is a lot of misinformation about hard money loans found on the internet. You have to be incredibly careful about what you read, hear, etc.
Illustrating the point are five examples of things you have heard about hard money described below. Each of them is not true. You might not know that if you don’t take the time to research hard money loans for yourself.
1. Hard Money Loans Are Always Expensive
One of the main criticisms of hard money is that lenders charge higher than average interest rates. This equates to the false assumption that hard money loans are always expensive. That’s not true. To determine how expensive a loan is, you have to combine principal payments, interest, and fees.
You may choose to borrow $250,000 on a 30-year mortgage at 4%. Your interest payments alone will total more than $179,000. Meanwhile, a property investor borrows the same amount on a 1-year hard money loan at 10%. His interest rate is more than double yours. Yet his total interest payments work out to only $25,000. Hard money is less expensive for him despite the interest rate being so high.
2. Hard Money Is Only for Losers
Perhaps you’ve heard that hard money loans are only for losers. They are for people who cannot get traditional funding because their credit is so bad. Again, not true. According to Salt Lake City’s Actium Partners, hard money borrowers are some of the most financially successful investors in the world. They could get traditional financing if they wanted to, but hard money is a better option for them. It is faster, requires less paperwork, and comes with shorter terms.
3. Hard Money Lenders Don’t Care About Credit History
Hand-in-hand with the loser myth is the false assumption that hard money lenders do not care about credit history. It is true that they don’t pay attention to credit history when deciding whether to approve a loan. Hard money loans are approved on the strength of the borrowers collateral. But lenders still look at credit history to determine interest rates. Even with hard money, you will pay a higher rate as a result of bad credit.
4. Hard Money Lenders Are Predatory Lenders
It is often assumed that hard money lenders are predatory by nature. In other words, they make risky loans in hopes that borrowers default so they can seize properties. Fortunately for borrowers, it is not true. Hard money lenders have no interest in becoming property owners. By and large, they are not predatory in their practices.
5. Hard Money Is a Good Substitute from Mortgage
Finally, some people mistakenly believe that they can buy their homes using hard money. That may have been the case prior to the 2008 housing crash, but that’s not how hard money works today. Hard money lenders stay away from residential mortgages as a matter of course.
A lot of people don’t know much about hard money because they never have need to investigate it. But look under the surface and you discover there is more to hard money than meets the eye. A lot of the information you find online just isn’t true.