Many borrowers don’t know that when it comes to getting a loan, they have choices. Most people are only aware of—or only trust—conventional lenders. However, there is a whole other world of loans available through hard money lenders. 

6 Wrong Answers to Hard Money Questions

If you’re new to hard money loans, it’s natural to have questions. But it’s also important to make sure you’re getting the right answers to those questions.

Question 1: Do I need a good credit score to get a hard money loan?

Wrong answer: I can only get a hard money loan if I have good credit. 

Hard money loans are based on your equity and the parameters of the project you want to finance. Your credit history doesn’t come into play at all. As long as you have equity, you may be able to qualify for a hard money loan.

Question 2: Can I get a hard money loan if my tax returns don’t show strong past income?

Wrong answer: I don’t have a good income history, so I can’t get a hard money loan.

Even high earners can get rejected by conventional banks if they recently changed jobs or have nontraditional sources of income. Hard money lenders won’t ask to see your bank statements or tax returns to confirm cash flow, because, unlike conventional lenders, they will not base decisions solely on your income history.

As long as you have enough equity invested into the property, hard money lenders can be much more flexible than traditional banks.

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Question 3: Can I afford a hard money loan?

Wrong answer: Hard money loans are too expensive.

It’s true that hard money loan rates and fees are often higher than a conventional loan. However, hard money is typically intended for short-term financing through bridge loans, fix and flips, cash-out refinancing, and so on. If you make the right investment decisions, hard money should always either help you make money or save you money, and the cost is offset by the profit you’ll make on your investment. Buyers could utilize hard money to make a lowball quick close offer. Of course, everything doesn’t always go as planned, so if you decide to hang on to a property longer, you can always refinance to a traditional mortgage. On a refinance, borrowers often use hard money to avoid paying penalties on their existing loan or to save a property from foreclosure.

Question 4: Can I get a hard money loan in time to finance my project? 

Wrong answer: It takes too long to get a hard money loan.

Hard money loans are significantly faster to close than conventional loans. A traditional bank typically takes about 30 days to close, but a hard money lender can do it in less than a week. This is one of the major advantages of hard money for real estate investors because it gives you a competitive advantage when trying to purchase properties.

Question 5: Are hard money lenders trustworthy?

Wrong answer: I can’t trust hard money lenders because they’re not licensed.

Hard money lenders must be licensed in any state in which they operate. Although they don’t have to conform to as many regulations as conventional lenders, hard money lenders are regulated. This is good news for many borrowers because it builds trust. 

Being licensed also usually means that your lender has some relevant experience because most states require at least one person in the organization to have a real estate broker license. When you work with a hard money lender, you can be confident that they understand the deal you’re working on. This allows them to help you come up with creative solutions that traditional lenders can’t offer.

Question 6: When is the best time to use a hard money lender?

Wrong answer: I should only use hard money as a last resort.

A common misconception is that hard money lending should only be considered when all other options have been exhausted. On the contrary, hard money offers many advantages over traditional loans. The main advantage is speed. If you want to stay competitive as a real estate investor, you need fast access to cash. You get this with a hard money lender, including same-day approval and closing in as little as five days.

Secure Your Next Loan with Socotra Capital

If you’re a real estate investor or business owner who needs short-term cash to fund a project, Socotra Capital is here to help. No matter what your experience level is, we can provide you with the right hard money loan solution. 

Read The Borrower’s Guide: Process, Preparedness, and Timeline to learn more about hard money lending and what it can do for you.

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