The Difference Between Hard Money Loans and Other OptionsOn May 20, 2021 by Hallie Howard
A hard money loan is a great option for some types of borrowers. A hard money loan offers fast solutions for a certain set of real estate borrowing needs, but this lending option isn’t for everyone. A hard money loan operates as a type of personal loan, but its unique qualities set them apart from virtually every other lending arrangement that you might consider utilizing for your personal financial needs.
Loans, in all their forms, offer stability to consumers looking for financial support to purchase all manner of items. From homes or new computers for work-related tasks to professional attire for women, personal loans are a huge help for many consumers requiring a boost to conduct their day-to-day lifestyle.
Whether your financial needs include buying business casual blouses and skirts or reconciling your credit card account, it’s crucially important to understand the variety of loan types available to you in order for lenders to make the most of your next experience as a borrower.
The Hard Money Loan
A hard money loan is essentially a collateralized line of credit backed by a hard asset, which is often a real estate property. Hard money loans give you access to fast capital with the help of the value of the property that you already own rather than relying on your credit score. Borrowers benefit the most from a hard money loan when they’re looking to add a second real estate property to their accounts—often as a vacation home or for real estate investment purposes.
Homeowners with significant capital ownership over their primary residence can leverage this equity for increased buying power with little in the way of lengthy credit checks, application forms, and other time consuming measures that typically accompany a typical mortgage or other loan application.
However, while a hard money loan can get you the funds you need in a hurry, there are some drawbacks to this real estate-focused lending relationship. Lenders engaged in the hard money process charge an interest rate, just like any other lender, but they also take possession of a written guarantee of your home or another underlying collateral asset in the event of non-payment. If you begin to get behind and miss your monthly payments, you could lose both homes! This means that hard money loan options are best for those with the cash flow to support the additional monthly payment burden that will come along with the new loan obligation from your hard money lender.
Mortgage Loan Refinancing
Another angle to attack capital requirements through is the refinancing of your current mortgage. Those without the requisite equity in their properties for a hard money loan might consider a refinancing opportunity. Refinancing, in the simplest terms, is the process of taking out a new loan on your home in order to pay off the remaining balance on your current mortgage. This is a great way to squeeze equity value from your property or to reduce the interest rate that you currently pay on the monthly payments to the bank.
In fact, all homeowners should consider refinancing throughout their time in the property. This is because interest rates fluctuate throughout the years and decades, so a fixed rate that took effect ten or fifteen years ago when you got your conventional mortgage may be significantly higher than the market rate that exists today for new buyers.
Of course, a refinance will require new origination fees and much of the initial mortgage application process that a hard money loan user doesn’t have to bother with. Still, the benefits can be tremendous when used properly.
Credit Card Discipline
Credit cards allow for balance transfers, cash withdrawals, and many other creative ways for borrowers to utilize their lines of credit to help out in the short term. That said, credit cards offer the average consumer the ability to overdraw beyond their capacity to effectively repay their obligations. This leads to significant interest rate additions to the principal.
Businesses use credit card reconciliation in order to maintain a strong budget-consistent spending and cash intake balance, and consumers like you should as well. Reconciliation is a simple process that accounts for the spending and payoffs that occur each calendar month. This process can help you make greater sense of your monthly bills, the spending habits that are draining your cash flow or ability to save, and ongoing interest charges that make a huge dent in your long term financial freedom.
Loans come in many shapes and forms. All offer something unique to the consumer, but no matter how you slice it, each type of loan—from a variety of hard money loan options to a credit card balance transfer offer—provides a significant drawback or two that must be internalized and addressed in order to make the financial product work for you and your needs. Take the time to learn about the best options for your situation and make an informed decision that will pay dividends toward your future for years to come.