Hard money construction loans are one of the many types of people consider when they’re doing home renovations. However, there are some important considerations to make about this specific type of loan.
Let’s take a closer look at private loans for home construction projects.
What Are Private Construction Loans?
Private construction loans and hard money construction loans refer to the same type of loan. This is a type of cash loan that uses real-world assets to back up the loan. In the case of private construction projects, part of the property is often used as the collateral for the loan.
Who Can Get a Hard Money Construction Loan?
Hard money construction loans are designed to assist people who are building and designing a second home. These are not the ideal type of loan for a homeowner who is renovating the property that they currently live in. There are other types of loans that can assist individuals who are currently working on a building that they also occupy.
This means that hard money construction loans are more for people who are doing renovation projects, flipping houses, or doing construction.
Are Their Benefits to a Hard Money Loan?
There can be a few advantages to choosing a hard money loan for your project.
The first is that hard money loans are much faster to close. Traditional loans can take up to five months to close while hard money loans can take only a few weeks. These are also asset-based loans so they can be a good option for individuals who have assets they can put up for collateral.
How are Funds Paid Out?
During the underwriting process, the lender and the loan company will arrange the draw schedule for the payout of finances. This is the schedule that determines when and under what conditions the loan can be dispersed.
Here’s how it typically works.
Once a phase of the project is complete, the lender will send a third party to inspect the building. If they agree that that phase of the project has been completed according to the draw schedule, they will then order at the next round of funds to be dispersed. This process typically takes three to five days.
How Does Repayment Work?
The repayment for hard money loans is a little different than what you might expect. If you are used to typical loans, like a home mortgage, then things are going to be different this time around. Hard money loans have different payment schedules and plans that you can work out with the lender.
How to Find the Right Lender
You should look for a reputable company that has experience dealing with hard money loans. They should be able to walk you through the process and answer any questions you might have about this particular type of loan.