How Hard Money Loan Rates Differ from Bank Rates

In today’s real estate market there are lots of homes and commercial properties available for sale. With mortgage rates as low as they are, it seems like it would be a great time to purchase investment properties. However, many traditional lenders aren’t quite as willing to part with loan money as you may think, especially on properties that need improvement or have high vacancy rates. A hard money loan can be the key to getting the property you want but there is a significant disparity in hard money loan rates than standard bank or mortgage rates. Here’s why: Bank interest rates on a mortgage is generally in the 3-5% range but aren’t easy to get. Borrowers have to have good credit, have to have a property that is in excellent condition and have to have no cash flow issues. Hard money loan rates typically are in the 9-12% range depending on the loan type but properties don’t have to have perfect credit. Not only that, but the property may need improvements which a bank won’t lend for. Hard money loans can be used for property to be developed as well. Many traditional lenders simply aren’t making loans for land which means the only option you have for a property purchase of this type is a hard money loan. Since banks and other traditional lenders aren’t making these loans at any interest rate and if the land is an integral part of a deal, then hard money loan rates may actually be reasonable. When dealing with foreclosure or bankruptcy, a hard money loan can give you the leverage you need to get out from under a property. Since you’re dealing with a distressed property, banks and traditional lenders aren’t going to touch the situation, especially with properties under Chapter 11 bankruptcy. This means even with the hard money loan rates, you can get the property out of bankruptcy and out of foreclosure so you can sell it. This means you can at least get the value out of your property without taking a major loss. Another aspect of a hard money loan is the fact that they are approved much faster than a bank loan usually is. Instead of having to wait for months for a traditional loan to come together, which may totally wreck a property deal, a hard money loan can be acquired so the closing can take place in weeks. This means you can apply for other financing at a lower rate and pay hard money loan rates for only a short time until that other financing comes together. Hard money loan rates may be significantly higher than standard bank rates, but with the flexibility that you have with a hard money loan, you can make an impossible situation possible.