If you want to borrow money without going through traditional mortgage lenders, a hard money loan is a great option. In most cases, a hard money loan comes from individual lenders who base their lending decisions on the property you’re offering as collateral. When you need a loan fast or when traditional lenders refuse to give you money, a hard money loan may be your only option.
In this post, we’ll review how hard money loans work and the pros and cons of borrowing from a hard money lender in Colorado.
How do hard money loans work?
In most cases, loans require proof that you can repay them. You’ll need to have a good credit score and a steady income for a lender to even consider giving you money. Once a traditional lender deems you fit to borrow, the process is painfully slow to actually secure the money. In any case, you may apply for a loan, be told you are able to receive one, and then not be approved. You wait to be told no, but your life and investment opportunities don’t wait for you to say yes.
Hard money lenders in Colorado approach loans differently. They base their lending on the collateral you offer. Hard money lenders aren’t concerned with if you can repay or not, because the collateral you offer is their assurance for payment. The value of your collateral is much more important to a hard money lender than your financial situation.
The disadvantage of hard money loans
If you’re looking for short-term loans, a hard money loan is the best option. People who fix and flip homes use hard money loans frequently, as they own their investment properties just long enough to sell them and turn a profit and then pay off their loans within a year. Nonetheless, here is the biggest con of hard money loans:
The cost – Hard money loans are quick and relatively easy to get, as long as you have collateral. The interest on a hard money loan is typically in the double digits, and for good reason. The lender is allowing you to borrow money simply on the value of the collateral you offer up. There’s a lot of risk. However, if you handle your finances correctly, successfully invest your money, and pay the loan back, you can get ahead.
The pros of hard money loans
Hard money loans are expensive compared to other loans, but they’re also easier to secure. Here are some of the pros to borrowing through a hard money lender in Colorado:
The speed – The lender’s primary focus is the collateral you can offer for the loan. This means that as long as that collateral is proven to be yours, they can push the paperwork through the appropriate channels to get you the money you need quickly. Collateral allows for a hard money lender to spend less time ensuring you can pay back your loan and more time getting you the money you need. They don’t need to comb through your loan application and required financials to prove a high probability of payback. Instead, they can lend you money and rely on your collateral holding value as you pay the loan back.
The flexibility – Hard money lenders don’t use a standard underwriting process like traditional lenders. Instead, they evaluate each deal separately from all others. You may be able to work with a hard money lender to adjust payment schedules, interest, and other loan factors unlike traditional lenders.
The approval – The process to be approved for a hard money loan is relatively simple compared to that of a traditional loan. A hard money lender in Colorado will allow you to borrow the worth of your collateral in loans. Most lenders work off a loan-to-value ratio (LTV), which they try to keep as low as possible to reduce risk on their side of the lender-borrower relationship. The LTV is directly related to how fast the lender would be able to sell your collateral and get their money back if you couldn’t repay your loan.
Tabs: Your Colorado hard money lender!
We’re a family-owned-and-operated company, lending primarily out of Denver, but we service all of Colorado with both residential (non-owner occupied) and commercial properties. Have more questions about hard money loans? Visit our Frequently Asked Questions section. If you’re a investor looking to get your projects off the ground, give us a call today!