Do you know the difference between soft money and hard money lenders? If you want to finance investment real estate, you’ll want to understand the differences so you can determine which borrowing method will be best for your situation. In this post, we will break it all down so you can make the right decisions when buying real estate in Portland!
If you’re like most aspiring investors, you probably don’t have a large sum of money just sitting idle, ready to fund your first real estate deal. In Portland, where property values continue to climb, financing becomes a crucial part of the investment process. For most buyers, securing funding means turning to either a traditional institution or a private lending source. Two common financing paths include soft money loans and hard money loans—both of which serve different purposes based on your financial position and the nature of your deal.
Soft money loans are typically offered by banks or credit unions and come with lower interest rates and longer repayment terms. However, they often require good credit, proof of stable income, and a more extensive approval process. On the other hand, hard money loans are issued by private lenders and are asset-based, meaning the property itself serves as the main form of collateral. These loans can be secured quickly and are ideal for short-term projects like fix-and-flips, but they tend to come with higher interest rates and shorter terms.
No matter which option you pursue in Portland—whether a conventional bank loan or a deal with a private investor—it’s essential to do your due diligence. Compare loan terms, understand the total cost of borrowing, and ask questions about timelines, fees, and approval criteria. Choosing the right financing solution can make or break your investment, so take the time to ensure it aligns with your strategy and long-term goals.
What Is A Hard Money Lender?
A hard money lender is a private individual or company that offers short-term loans secured by real estate or another valuable asset. Unlike traditional lenders that rely heavily on a borrower’s credit history, hard money lenders focus primarily on the value of the property being used as collateral. This makes hard money loans an attractive option for real estate investors who may not qualify for conventional financing or who need access to funds quickly.
Hard money loans are commonly used as bridge loans—temporary financing that fills the gap between acquiring a property and securing long-term funding or reselling it. Because the approval process is asset-based rather than credit-based, the application and funding timeline is often much faster, sometimes taking just days instead of weeks.
These loans typically come with higher interest rates, larger origination fees, and shorter repayment terms, usually ranging from six months to a year. While this may seem aggressive compared to traditional mortgage timelines, hard money loans are not intended for long-term use. They are ideal for projects such as fix-and-flips, auction purchases, or distressed property renovations, where the investor plans to quickly improve and sell the property at a profit.
For investors in Portland, working with a reputable hard money lender can provide the flexibility and speed needed to compete in a fast-moving market. However, it’s crucial to understand the loan terms fully and have a clear exit strategy in place before committing to this type of financing.
What Is A Soft Money Lender?
Soft money lenders are your traditional loans from banks and credit unions. It is usually based on your credit score, debt to income ratio, and ability to pay back the loan. For example, your auto loan is soft money. 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 as opposed to a hard money loan which you will want to get paid back right away.
How To Get The Borrowing Process Started
Borrowing money usually requires you to do some research on the different lenders out there. Once you’ve chosen one, you’ll need to go through the application process. Before you being the process of borrowing money, you’ll want to ask yourself a few questions first.
- What do you intend to do with the loan?
- What do you have for collateral?
- Do you have a business plan?
- How long until you can repay the loan?
- How quickly do you need the cash?
Once you have really sat down and established what you will need, you’ll want to do your homework on trusted lenders. Each lender works a little bit differently. When researching soft or hard money lenders in Portland, you’ll want to learn about…
- The interest rates
- The loan terms
- The origination and lender fees
- Qualifications to receive funding
- What other people have to say
If you are unsure about who to work with, talk to other investors who have been in your shoes. Getting first-hand accounts will better prepare you when choosing your lender. Don’t just choose the first one that pops up, take some time to do your research, interview the lenders who can offer what you are after, and choose the one who is 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 what you plan to profit with a clear exit plan in place. To get the funding you’re after, 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 2019. In this guide, they have researched over 20 of the most popular hard money lenders and provided detailed information about the top 8.
The Private Money Lending Guide is another great resource for connecting lenders with borrowers. The provide lender listing throughout the United States and can help with many types of real estate loans.