What is the difference between a hard money loan and a bank loan

Hard money loans vs. soft money loans: what is the difference?
October 6, 2021

When you start a business as a real estate investor, one of the most common questions arises: where to get money? There are two options – a hard money lender or a bank loan. But before deciding which one to choose, let’s consider the advantages and disadvantages of both of them.

Loan amount
The total amount of money a hard money lender can lend you equals the value of the property you will rehab or purchase. Usually, the hard money lender is ready to cover up to 80% of LTV, while the bank is ready to cover up to 70% of LTV.
Sometimes a trusted investor may get additional financing to cover renovations.

Loan term
The maximum period a hard money lender can give you a loan is usually from 6 months to 24 months maximum, while the bank’s term may range from 10 to 15 years. However, don’t forget you need to have a perfect credit history to get a loan from the bank.

Loan interests
Interest rates on hard money loans are high because of short-term loan herm, and it usually starts from 8%. A bank requires a lower interest rate between 3-4%.

Loan requirements
The essential part is how to qualify for a hard money loan and bank loan?
If you choose to get a loan from the bank, you will need to have a well-researched business plan, a cash reserve for at least six months of payments, 30% of down payment, and the cash for other costs that aren’t covered with the loan. Also, mind that your credit score and history play a significant role; if it’s bad, you won’t be able to get a loan.
If you find a hard money lender a better choice, the main thing will be the property you are going to purchase/rehab. It will be used as collateral, so a lender will get the property back if you default on repaying the loan.

The main advantage of a hard money lender over the bank is speed. Getting a loan in the bank is a pretty time-consuming process – the loan approval takes weeks or even months while LBC Capital money lender pre-approves your loan for 24 hours and closes it up to 7 days. We give loans with a credit score of 580 and the loan amount from $50 000 up to 25 million.

LBC Capital is a unique California private money lender for real estate investors looking for financing in a matter of days. We offer flexible underwriting, attractive business purpose hard money loans, no hidden fees, and quick funding. In addition, we develop long-term relationships with our clients through our professional service and exclusive loan terms.

Should you still have any questions, please, do not hesitate to call our loan advisor for free assistance at (818) 761-7234.

Check our recent article on the difference between hard money loans and soft money loans here.

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