Learning the difference between hard money and soft money lenders is considered essential if a person wants to finance investment real estate. This helps a person to find out which method of borrowing is more suitable as per the situation.
Most people don’t have millions of dollars in saving that they can invest in real estate or buy some property. So, if a person is thinking about buying real estate, he/she will have to borrow some money in order to buy real estate.
Both the options of soft and hard will be available and one gets to choose one of these according to the circumstances as well as needs of an individual. Before choosing one of the above-mentioned methods of loan one gets to know all the details and must try to find answers to all the questions related to the process.
Let’s jump right in.
Who is a Hard Money Lender?
Hard money lenders provide short-term loans that must be paid back in a short period of time and they are supported by some type of asset. While applying for hard money, the credit score of borrowers isn’t taken into consideration as they have provided security and are absorbing much of the risk.
Repayment time for the loan is much less in the case of hard money as compared to soft money. All the loans taken must be paid in the time duration of a year or related time.
Hard money loans are usually suitable for fix and flip properties and other types of investments that can be paid off easily in a short time period.
Who is a Soft Money Lender?
Traditional loans from banks and credit unions come under the category of soft money lenders and it is generally based on few factors like credit score, debt to income ratio as well as the ability to pay back the loan.
In this type of loan, you basically get lots of time to pay back the debt so this process is easier as compared to hard money loans.
How to Start the Borrowing Process
Before borrowing money, a person needs to do some research on the lenders presents out there in the market. After choosing the lender, you will start with the application process.
Before starting with the process of borrowing money, ask yourself these questions first.
- What is the purpose of taking a loan?
- What you can offer as security?
- Do you get any business plan in your mind?
- How long it is going to take for you to repay the loan?
- How quickly do you need the cash?
Once you are doing with your thinking process and totally sure about your decision, you need to learn more about the lenders. Every lender works in a different way. While finding the lender, you need to keep few things in mind:
- The interest rates
- The loan terms
- Lender fees
- Eligibility to receive a loan
- Reviews of people about borrowing
If you are still unsure about lenders then it is better to find people who have been through the same process as you are going to experience. Getting advice from them will be sufficient for you and can help you to choose the lender.
It is advised not to go for the lender who pops up first or who is being suggested first, instead interview the lenders who can offer what you are expecting and try to find the best suited for you.
What You Need
In order to get a hard money loan for the purpose of real estate investments, first of all, you will need to schedule your tasks prior to filing the application.
First, you need to arrange a well thought and concise plan that you can show and discuss with your lender. You need to be clear about your profit as well as your exit plan. In order to get the funding, you need to have a down payment and equity in the property.
In order to get hard money, you need to provide some security in the form of assets, etc. Before giving you the loan, the lender will make sure whether you have some income with which you can pay the loan back monthly in the form of installments or not.