Is a Hard Money Loan Considered a Cash Offer?

hard money loan

The real estate industry is full of great opportunities for investors. A lot of these opportunities work only on cash. This raises a very important question – is a hard money loan considered a cash offer? In this article, we will answer this question in detail.

So continue reading to learn more.

Is a Hard Money Loan Considered a Cash Offer?

Even though hard money loans aren’t cash, they are often viewed as a cash equivalent as they are different from conventional loans. Typically, a bank will offer you a mortgage based on the market value of the property, i.e., its purchase price. However, a hard money loan is based on the anticipated value of a property after the repairs have been done – not its present market value.

Being an investor, you should aim to buy a property that offers you a larger upside potential. The difference between your hard money loan (the property’s value after renovations), and the existing market value determines the expected profit on your investment. This is why hard money loans are generally considered equivalent to cash in the real estate industry.

What Is a Hard Money Loan?

In simple words, a hard money loan is considered to be an alternative to borrowing money. It is provided to companies and individuals by private lenders. These days, successful investors in the real estate business depend upon hard rehab money and hard money lenders to buy an investment property that enables them to fix and flip or purchase and sell properties.

At DFW Specialty Lending, we fund non-owner single-family real estate loans that are unable to meet bank requirements, along with lending to borrowers facing time constraints.  

Situations Where Hard Money Is Considered a Cash Equivalent

Hard money property purchasers can close the deal as quickly as cash property purchasers. This is due to the fact that hard money lenders usually provide funds much more quickly than conventional financial institutions. Credit unions and banks need to go through your credit history before qualifying you for a loan. On the other hand, hard money loans focus on the property’s value, so they are ready to give the loan as soon as they can be sure that your property valuation is correct. Here is a list of real estate processes that view hard money loans as a cash equivalent.

1. Property Flipping

Property flipping is quite common in the real estate business. This is mainly because investors have access to quick financing from private lenders by offering proof of successful and profitable property flips in the past and the expected profits and costs from the resale.

Property flipping views hard money as equal to cash due to its quick availability that allows investors to use it to finalize deals just as quickly as cash investors. Moreover, commercial banks don’t provide loans for distressed properties that are the primary focus for investors interested in fix-and-flip.

2. Commercial Property Investment

Buying commercial property can be tough for individuals who don’t have inadequate funds and poor credit history. Hard money loans allow these investors to benefit from profitable opportunities in the world of real estate. If you have a rental or commercial property you would like to invest in quickly; hard money loans provide the best way to successfully close the deal.

Why Should You Use a Hard Money Loan?

Here are some of the advantages of a hard money loan.

1. Qualify in a Shorter Time

Hard money lenders can offer loans much more quickly than traditional lenders. A private lender is primarily concerned with the value of the property posted as the collateral rather than your credit history. This means the time it would take to qualify for your loan is considerably reduced.

2. Flexible Conditions

Private lenders don’t follow a conventional underwriting process. Rather, qualifying for a loan and the amount of the loan are assessed on a case-by-case basis. This enables you to negotiate the loan duration and length of repayment along with other conditions in a hard money loan.

3. Pre-Approved Loan Amount

The traditional process of getting a loan approved generally necessitates that the person pre-qualifies for a loan amount. In the world of real estate, this means searching for a property depending on your pre-approved loan amount. When it comes to a hard money loan, the lender is ready to offer an amount depending on the property’s value, allowing you to search for a property depending on its profitability.

Do You Need a Good Credit Score to Secure Hard Money Loans?

In the case of a hard money loan, it is the investment property rather than your finances that helps you secure the loan. You don’t require an excellent credit history to get approval for hard money loans.

At DFW Specialty Lending, you can get approval if you have foreclosures, bad credit, or bankruptcy. However, the final result will depend on every individual’s situation and existing financial position.

Do Hard Money Loans Show Up on Your Credit Report?

Many hard money loans, including fix and flip property loans, don’t appear on your credit report. Nevertheless, you should remember that this does not always hold true, and you need to discuss the particulars of your hard money loan with your chosen lender.

In any case, the loan will generally show up on an asset search or background check. This is what the majority of hard money lenders use to approve an application.

Wrapping Up

When you plan to work with a specialty lending firm, one of the biggest things you need to focus on is identifying a firm that pays attention to the investor’s position and one that is willing to support your efforts.

At DFW Specialty Lending, we don’t just offer tailored services but also handle the loan process from start to end. We strive to cater to the unique needs of every client who comes our way. No matter what the situation is, our goal is to ensure we handle each loan transaction with attention and care. Feel free to contact us to get a hard money loan in the shortest possible time!