Real estate is typically considered a stable long-term investment, both for its “real” value and tendency to appreciate over time. However, depending on the condition of a prospective investment property, a bank may be reluctant to offer a typical mortgage. In such cases, a hard money loan can be a useful means of funding a real estate purchase. Hard money loans are entirely based on the value of the property in question, making them unique from a typical mortgage. Below are three benefits to taking out this type of loan when buying property.

1. Financial History is Less Important

Many borrowers have difficulty securing loans because of poor credit or a spotty financial history. In many cases, this is through no fault of the borrower: you may have student loan debt, or might have hit an unexpected financial hiccup in your past.

Hard money loans do not take into account a borrower’s credit score or financial history. The loan is solely based on the value of the property in question.

2. Faster Access to Financing

Because a hard money loan does not require the same documentation that is necessary for a typical loan, closing on a loan will typically be far faster than a traditional bank loan: a matter of days versus a matter of months.

3. Assets Are Less Important

A unique benefit of a hard money loan is ability to access financing without significant cash or assets to your name. Unlike typical mortgages, a down payment is not necessary, and you can potentially secure the entire lump sum of cash for your purchase without putting down much money of your own.

This said, hard money loans tend to have high origination fees, which you will be required to pay in order to take out a loan. Perhaps more significantly — and a major drawback of these loans — are the high interest rates. Hard money loans are undoubtedly riskier for banks, and so they try to recoup their funds accordingly. You may be forced to pay interest rates between 10 and 20 percent on this type of loan.

Ultimately, hard money loans do confer certain benefits that are unique and will not come with other loans. However, they remain an investment strategy for particular circumstances. You may find that hard money loans are useful for making initial purchases, but subsequent refinancing is necessary.

Whatever your real estate business plan, consider the above benefits of hard money loans to help you make a purchase.