Residential Real Estate Loan Vs. Bank Loan

Which financing is preferred by real estate investors, a residential real estate loan or a typical bank loan? Looking at interest rates, it is easy to conclude that banks loans are better than residential real estate loans, or hard money loans. But scrutinizing their key features, you’ll discover that real estate investors actually think otherwise.

For many real estate investors, hard money financing remains the best funding for their deals. That’s because this mode of financing has the qualities they are looking for: big and fast. Compared to bank loans, residential real estate loans are often bigger. That’s because lenders of this kind of loan look at the value of the real estate property in good condition. Banks, on the other hand, look at the current value of the house. If you’re purchasing a dilapidated property, which is obviously undervalued, don’t borrow money from banks. Investors usually buy dilapidated houses.

The value of a residential real estate loan is based on the value of the property after the investor has done all improvements. For instance, a house may be valued at $30,000 in its current ugly state but could fetch for around $100,000 once repaired and renovated. Banks will lend you $30,000 in this condition while hard money lenders will release around 70% of the $100,000 after repair value. Which one will you choose if you’re an investor?

Another reason why residential real estate loans are better than banks loans when it comes to real estate investing is the speed of processing. Hard money lenders can process loans in just days. As for traditional lenders like banks and credit unions? They usually need a month to get to know the borrower and if that borrower’s credit score is high enough for their standards. In the field of real estate investing, the faster the financing, the better. If you can get the same amount of money in a month and in two days, which scenario will you choose?  Because of these two reasons, investors are likely to get a residential real estate loan to finance a deal.

Questions about the huge interest? That will depend on your agreement with the creditor. They are usually annual rates that are broken down in monthly installments. Therefore, if you are able to repay the loan in six months, you only pay half the interest plus the principal.

Is it hard money or bank loans? Go to RehabHardMoney.com right now if you’re still undecided.

About the Author

RehabHardMoney, the best place to look for hard money lenders and hard money borrowers. We specialize in bringing hard money lenders and hard money borrowers together.

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