Two of the most widely provided types of funding are transactional funding and hard money loans. Both transactional funding and hard money loans come into play for two distinct purposes related to different types of projects. It can be beneficial to know the difference between them to make better investment choices and succeed more often.
Transaction Funding Vs. Hard Money Loans
- Loan Term: Hard money loans can be used to fund projects over an extended period. It can be several months to a few years. Transactional funding is used to finance short-term deals that come to an end within one or two days.
- Purpose: Transactional funding is used when an investor has a willing buyer lined up, and the investor requires only a short-term bridge to close the transaction. Hard money loans are especially suitable for projects that demand renovations or holding periods longer than a few days.
- Pre-Approval Process: Transactional funding focuses more on the transaction itself. For example, transactional lenderswill want to see a contract with a buyer and a verified funds source for the other party. However, hard money lenders care more about the value and potential of the property.
- Risk: The risk with transactional funding is low for the lender and the borrower. It bases itself on a quick, pre-arranged transaction. Hard money loans involve more risk since a person holds the property for a longer time, and there’s a chance it may not be successful.
Costs and Fees: What to Expect
The cost of transactional funding is generally lower. Because the loan is usually only for a day or two, most lenders charge a flat fee on the loan amount. Plus, no high interest rates are required.
However, hard money loans are pricier generally. You will have to pay higher interest rates, origination fees, and closing costs. Some carry prepayment penalties because lenders need to be reimbursed over the time of the loan. It is a cost of offsetting the risk which accrues when loans are long-term and where there may not be as secure an investment.
Which Is the Better Option?
How do you choose between transactional funding or hard money lending? That depends on the nature of your project.
If you have a buyer already in place, transactional funding is perfect for short-term deals. It’s low risk, fast, and cheap if you’re involved in a real estate wholesaling deal where the buyer’s willing to close in a couple of days.
Hard money is better for longer-term investments. If you need time to renovate a property or you don’t have a buyer lined up, a hard money loan gives you the flexibility you need, although at a higher cost.
Do You Need Funding for Your Next Deal?
If you need quick, reliable funding on a real estate wholesaling deal, contact us at DoubleClose.com. Offer includes 100% same-day transactional funding with no upfront fees, regardless of the size of your deal. We can get the funding you need to close it quickly.
Reach out today so that we can have your next deal funded without any credit checks or hassle!