Hard Money Loans What You Should Know

Hard money loan

Accessing funds when you nee them is not always easy, but there are options that can help you to get the money you need when you need it. One such option is a hard money loan. Unlike bank loans, hard money loans are usually offered by private investors and are secured against some form of real estate. Given that consumer debt is continuing to rise, withe the Federal Reserve indicating that it had reached over $3.4 trillion in may 2015, being able to access much-needed funds to pay off debt or to fix up a new or existing property is an attractive option.

Whereas most borrowing is based on a borrower’s credit history and risk, hard money loans tend to be based primarily on the value of the property on which the loan is secured. This mean that the amount borrowed is related to the value of the property rather than the borrower’s credit status. Credit is considered in the lending decision as well, however. Private hard money lenders usually offer the loan on a year basis, but this can be extended to two to five years if necessary. the maximum duration is five years, in contrast to traditional loans which can span 20 years or more. The monthly payments made are of interest only or of mainly interest and some principal and borrowers will need to then pay a balloon payment at the end of the term.

A hard money loan can be obtained against an existing property or one that the borrower intends to purchase. Such borrowing arrangements usually mean lower loan to value ratios and higher interest rates, which can start at 15 or 18% or even higher. The investor is well protected in a hard money loan deal as such loans are usually offered with a property with 30% to 50% equity. One of the core benefits of a hard money loan for the borrower is that there is a very quick turnaround time, usually taking between a week and two weeks to process.

Hard money loans are good options in specific circumstances such as if you want to buy a house, fix it up and then flip it, or you have credit issues and want to buy a property. The quick turnaround and easier access to such loans relative to traditional borrowing agreements make them attractive options.

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