The terms “hard money” and “soft money” are used to describe different types of loans. In simple terms, hard money is readily available and used for a specific purpose, whereas soft money is not intended for anything specific. But there are other differences as well. If you are joining the fix and flip industry, it’s important to understand what hard and soft money is, as well as their distinguishing features.
What is Hard Money?
Hard money loans are a type of asset-based financing where the borrower acquires funds secured by real estate. Private investors and groups of investors typically act as hard money lenders.
House flippers and real estate investors find hard money attractive because it’s quick and easy to obtain. And, because the loan is secured by real estate, hard money lenders care less about your credit score and income and more about the property. However, you can expect a higher interest rate than conventional loans because of this added risk.
What is Soft Money?
Soft money loans are essentially opposite from hard money loans. They have lower interest rates, flexible terms and are easier to acquire, though they may still be secured by real estate. Soft money lenders also focus more on your credit score.
If you haven’t heard as much about soft money, that’s probably because it’s a blanket term used to describe loans that follow the above structure. Car loans are a good example of soft money, as you get 5-6 years to pay back the loan and your interest rates are based on your credit score.
Hard Money vs Soft Money: What’s Best for House Flippers?
When it comes to flipping real estate, hard money is your best bet. It’s an attractive option because it’s easy to obtain, doesn’t require a large down payment and allows you to close on a property within 3-5 days. And, even though the interest rates are higher on hard money, they won’t affect you much because you’ll payoff the loan quickly.
To learn more about hard money and how it can help you reach your real estate investment goals, contact First Funding Loans today.