What’s The Difference Between Hard Money Lenders and Soft Money Lenders

Understanding The Differences Between Hard Money Lenders and Soft Money Lenders in Omaha

Do you know the difference between soft money and hard money lenders? If you want to finance investment real estate, you need to understand the differences so you can determine which borrowing method is best for you. In this post, we will break it all down so you can make the right decisions when buying real estate in Omaha! 

If you’re like most people, you don’t have hundreds of thousands of dollars laying around, just waiting to be spent on property investments. Even if you do, you would be better off buying three properties with loans than one for cash (that’s a separate blog). If you want to buy real estate in Omaha, you’ll likely have to borrow some money. Both soft and hard money loans are appropriate at times, however, the differences are important and should be chosen based on your needs and circumstances. Whether you choose to use a bank or a private lender in Omaha, do your homework and ask the right questions.

What Is A Hard Money Lender?

Hard money lenders provide short-term bridge loans that are backed by some sort of asset. When attempting to acquire hard money, the borrower’s credit score isn’t as important as they provide collateral and are absorbing much of the risk. The repayment time for these loans is usually much less than a soft money lender (think months, not years). These loans are ideal for fix-and-flip properties and other types of investment that can be paid off quickly.

What Is A Soft Money Lender?

Soft money lenders are your traditional loans from banks and credit unions. They are usually based on your credit score, debt to income ratio, and ability to pay back the loan. For example, an auto loan is a soft money loan. You will typically have a longer period of time to pay it back, with the loan being backed by a certified lending institution. Getting a soft money loan is usually easier than getting a hard money loan and the interest rate is usually much lower.  These types of loans are meant to be paid back over time versus a hard money loan which is short term.

How To Get The Borrowing Process Started

If you haven’t chosen your lenders already, you’ll need to invest in research on the different lenders in your area. Once you’ve chosen one, you’ll need to go through the application process. Before you begin, be prepared for these questions.

  • What do you intend to do with the loan?
  • What is your collateral? This property or others?
  • Do you have a business plan?
  • How long until you can repay the loan?
  • How quickly do you need the cash? Do you need it all at once?

Once you establish your needs, its time for homework on trusted lenders. Each lender works a little bit differently. When researching soft or hard money lenders in Omaha, you’ll want to learn about…

  • Their interest rates
  • Their loan terms
  • Their origination and lender fees
  • Qualifications to receive funding
  • What other people say about them

It’s always wise to talk to other investors who have sought funding. They will have insights on which lenders are good for fix-and-flip, or cash-out-refinance, or construction. many investors use a combination of banks to meet all their needs. Also, it’s important to have back up lenders, since lending policies change over time.  Take time to do your research, interview the lenders, and choose the one(s) best suited to you.

What You Need

When seeking a hard money loan for your real estate investments, you’ll want to have all your ducks in a row before filling out the application.  First, you’ll need to have a well thought out and concise plan to show to the lender. You’ll need to show your profit with a clear exit strategy in place. To get funding, you’ll need to have a down payment and equity in the property. Hard money is asset-based, which means they will require some collateral on the loan. The lender will also want to see that you have some cash reserves and the ability to make your loan payments each month as well as cover the other expenses of the property.

Resources For Investors

Fit Small Business has created a guide to The Best Hard Money Lenders in 2020. In this guide, they have researched over 20 of the most popular hard money lenders and provided detailed information about the top 8. This a solid place to start.

The Private Money Lending Guide is another great resource for connecting lenders with borrowers. They provide lender listing throughout the United States and can help with many types of real estate loans.

Do you have questions about soft money or hard money lenders? Our team is here to help! Reach out to us today to learn more!

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