The real estate market poses an ever-increasing challenge for first time home buyers. The prices for even modest and starter homes continue climbing, often to astronomical levels in major urban centers. On top of that, traditional mortgage lenders primarily give mortgages to those with a credit score over 700.
This can leave young couples either priced out of a home purchase or unable to secure funding. Some would-be homeowners opt for non-traditional funding through hard money mortgage lenders.
Keep reading for some key reasons that first time home buyers should consider a hard money mortgage.
Speed
The traditional mortgage process moves at a snail’s pace, often stretching out for months at a time. While this works out for the bank, it can leave you watching your dream home getting sold off to someone else.
The process with a hard money lender moves much faster. Depending on the lender and amount, you can often secure a mortgage in a few weeks.
This leaves you in a more flexible bargaining position when negotiating for the property.
More Flexible Terms
Traditional mortgages come loaded with a lot of fees. Even worse, it’s a take it or leave it situation. Banks simply can’t budge on those fees, often for regulatory reasons.
Hard money mortgages come from private lenders. These lenders will often negotiate things like fees or the repayment terms.
For example, a new home always proves expensive in the first few months. Even with minimal, DIY renovations, and thrifty purchases, you’ll still pay out a lot to get settled. A hard money lender might negotiate a lower payment for the first six months.
You Plan to Sell in the Next Few Years
Many young homeowners treat their first home as an investment. They know, going in, that they’ll likely relocate for their career within five years. So, they focus on boosting the home’s value with strategic improvements.
Those strategic improvements focus on things with a good return on investment, such as:
- New roof
- New siding
- Kitchen remodel
The home as investment choice works well with hard money mortgages since they typically run on either a 3-year or 5-year payback schedule.
Less Focus on Credit Score
With normal mortgages, you live or die based on your credit score. Hard money lenders care a lot more about the collateral. In most cases, it’s the property you want to buy.
As long as the lender can reasonably sell the property and recoup their investment at a profit, they won’t care that much about your credit score.
Parting Thoughts on Using Hard Money Mortgage Lenders
Using hard money mortgage lenders isn’t right for every home buyer. The short-term nature of the loan makes it right for people who plan on selling within a few years. It’s also an alternative for those who don’t enjoy a stellar credit score.
Looking for more tips on buying a home or other personal finance areas? Check out some of the other excellent articles on this site.