Hard Money Loans definition
Do you think that ‘Hard’ money loans are in real sense hard? Couldn’t understand what these hard money loans are all about? Relax, this article will brief you about ‘Hard money loans’. These loans are a type of short-period loans issued by private individuals in exchange of high rate of interest. Along with the interest, a certain percentage of the loan amount needs to be paid to the borrower as fees. A hard money loan is secured on real possessions.
It is also known as bridge loans, the only difference in between the two is that bridge loan refers to the investment properties which is licensed for traditional loans but hard money loan focuses only on assets, inclusive or exclusive of banking arrears. The financial institutions do not stand as hard money loan lenders, it is only the private investors who lends their private money to the borrowers.
Hard Money Loan Lenders
The hard money lending end always remains in the gain or profit situation. If by any chance the borrowers fail to repay the loan amount, the lender will simply sell off the investment property of the borrower and hence, get back the given away money. Actually, the ones who are in the state of immense need of money finds it easier to extract loans from these privatized money lenders within a shorter span of time rather than the banks.
As, the name suggests, it is hard to repay literally, unless one is well settled with finance. A maximum percentage of the loan amount needs to be paid as down payment before the assurance of the loan is granted. There are some basic differences between hard money loans and traditional loans.
The latter one is granted by the traditional lenders which are the financial institutions. The banks or credit unions generate loans at lower rate of interest than the hard money loans and is often a long term one. Not everyone qualify to be issued loan by these institutions because of bad credit. These people comes to the real estate investors and gets themselves loan-granted at higher stakes. The mode of loan
transaction is done in cash.
Hard Money Loans rates
The latest rate of hard money loans ranges between 7.5% – 15%. Though this range of rates vary depending on the owner of granting loans occupied in it. Even, sometimes, the lenders charge fees which are referred to as the charge points on loans. The range of point is between 1% – 3%.
Hard Money Loans for first time flippers
Hard Money Loans for Bad Credit
The down payment is made with liquid money. Basically a credit score is dependent on the credit history of a borrower. It is taken into concern while the grant of loans are made by the banks/ financial institutions. But, in the case of hard money loan lenders, the score doesn’t plays much important role for them to lend money if the value of the property is good enough.
The process of underwriting before the assured loan is different for traditional loan and hard money loan. During the assurance of traditional loan, the underwriting involves various stages which convinces the loan giver to get back his/her money, but in the case of hard money loan, the underwriting process is done only within 2 days because the main aim of the lender is the value of the real estate.
The loan to value ratio is an accounting entitlement that ensures the ratio between the wanted amount of loan and the value of the asset. As, in hard money loan, the only security is the real estate, therefore, the loan to value ratio is generally low. The banks prefer to maintain a minimum percentage of the loan amount in case of rental properties as down payment, but for these hard money loan, the amount can be issued with nil down payment.
Hard Money Loan Requirements
If one is in need of hard money loan, they must satisfy the basic requites. Firstly, the borrower must be in a state of providing the maximum percentage of the loan as the down payment. Secondly, s/he must have a healthy cash reserve which is necessary to maintain the terminal loan payments.
Also, experience of the borrower matters, if someone is wanting to make a real estate investment, that person will definitely be given the loan amount within minimum time, but if s/he is just a first time flipper, then it is obviously going to take some more time. Thus, anyone who is likely to get into a deal of hard money loan should go through this article to have a
fair idea about this loan.
Source: Hard Money Loans