Hard money loans can be a viable option for individuals with poor credit who are looking to borrow money, but they come with specific features and risks. Here’s everything you need to know:
What is a Hard Money Loan?
A hard money loan is a type of short-term loan that is typically secured by real estate. Unlike traditional loans, which are based primarily on your credit score, hard money loans are based on the value of the property being used as collateral.
This makes them an option for people with poor credit or a history of financial problems, since lenders are more concerned with the property’s value than your credit history.
How Do Hard Money Loans Work?
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Property as Collateral: The lender will primarily look at the value of the property you are using as collateral, not your credit score. If the property has significant equity, it could be enough to secure the loan.
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Short-Term: These loans are typically short-term, ranging from 6 months to 3 years.
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Higher Interest Rates: Hard money loans usually have much higher interest rates compared to traditional loans (typically 7% to 15% or higher).
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Loan-to-Value (LTV) Ratio: The loan amount is usually a percentage of the property’s value, typically around 60% to 75% of the home’s value.
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Quick Approval: They can be approved and funded much faster than traditional loans, sometimes within a week or less.
Advantages of Hard Money Loans for Poor Credit
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Easier to Qualify: Since the loan is secured by property, lenders are less concerned with your credit score.
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Fast Access to Cash: These loans are often processed quickly, which can be useful if you need funds immediately for an investment or emergency.
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No Credit Checks: The focus is on the value of your property, so if you have a low credit score or even a bankruptcy history, you may still qualify.
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Real Estate Investment: Hard money loans are often used for fix-and-flip projects, where investors buy properties, renovate them, and sell them for profit.
Disadvantages of Hard Money Loans
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Higher Interest Rates: Because they’re riskier for lenders, hard money loans typically come with much higher interest rates than conventional loans.
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Short-Term Repayment: These loans require repayment in a short period, which can be difficult if you don’t have a plan to refinance or sell the property.
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Risk of Foreclosure: If you can’t repay the loan, the lender can seize the property. This is a significant risk, especially if you’re borrowing against a property you can’t afford to lose.
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High Fees: There are often high upfront fees, including origination fees (which can be 1–5% of the loan amount) and closing costs.
Who Typically Uses Hard Money Loans?
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Real Estate Investors: Those looking to buy properties for rehab or flipping often use hard money loans to fund purchases quickly.
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Borrowers with Poor Credit: If you’ve had trouble getting approved for traditional loans due to a low credit score, a hard money loan may be an option.
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Property Owners Needing Quick Financing: Homeowners needing quick cash for an urgent situation (like avoiding foreclosure) may turn to hard money loans.
Alternatives to Hard Money Loans for Poor Credit
If you’re considering hard money loans, you may also want to explore these alternatives:
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Personal Loans: Some lenders offer unsecured personal loans for people with poor credit, though interest rates will be high.
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Secured Loans: If you own another asset (car, savings, etc.), you could use it as collateral for a secured loan with better terms than a hard money loan.
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Peer-to-Peer Lending: This is an online platform where individuals lend to others, and some platforms specialize in borrowers with poor credit.
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Home Equity Loans: If you own your home, you could consider a home equity loan or home equity line of credit (HELOC), which typically offer lower rates than hard money loans.
Conclusion
Hard money loans can be a quick and viable option for individuals with poor credit, especially if you have valuable real estate to secure the loan. However, you should carefully consider the high costs, short repayment terms, and potential risks involved.
If you are planning to pursue a hard money loan, make sure to:
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Compare lenders to ensure you’re getting the best rates and terms.
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Evaluate your ability to repay the loan in the short term.
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Understand all fees associated with the loan.
Hard Money Lenders in Phoenix, AZ
When you are searching for hard money loans near me in Phoenix, Scottsdale, Glendale, Tempe, Mesa, Chandler, or Gilbert, Arizona; Brad Loans is Arizona’s most trusted direct hard money lender! We specialize in hard money loans for Fix and Flip, refinancing mortgages with bad credit, business loans secured by real estate, real estate purchases, short sales, and other endeavors with quick turnaround in the Phoenix Valley.
BradLoans.com is the most trusted direct hard money lender and private money lender in Arizona! We are the best hard money lender in Arizona with the ability to fund commercial & residential hard money loans many times within a couple of days or less. Our lending rates and fees are reasonable compared to other Arizona hard money brokers or mortgage brokers in Arizona.
