What is a Hard Money Real Estate Loan?

Real estate investors have a lot of choices when it concerns obtaining loans for their transactions. One of these is the hard money loan which simply refers to private money loaned to a borrower but with very high interest rates of 12 to 18 percent. This type of loan is not based on your personal background and credit history but more on your property’s value. 

Hard money loans are usually granted for short term only like less than two years and require real estate properties as major collateral. Most often, credit ratings, cash flow, income history and debt to asset ratios are no longer considered. However, they should never be used as a first option especially to save you from a bad mortgage because of its high stakes. Experts advise to use it as a last resort when finances are already very hard to find. 

Consumers in a very bad situation and who need immediate finances should understand thoroughly what they’re getting into should they decide to avail of a hard money loan. Be smart enough to know the fees and the actual money you will get. Hard money lenders may not normally offer very good terms. They limit a borrower’s loan-to-value ratios in a bid to gain money from the properties should they foreclose. Be wary also of unscrupulous lenders who structure private money loans beforehand so they can later own the property and profit from its sale especially if the borrower fails to repay the loan. 

Lenders of hard money loans are mostly from the private sector who have enough cash reserves. The above average interest rates they charge stem from the high-risk situation of borrowers. They can easily grant loans to finance properties even in remote locations or those in unpopular areas which regular lenders avoid. 

Now, you may ask where you can find lenders who can loan you hard or private money. Most hard money lenders operate their business only in limited areas which they know best. Some options are to contact mortgage brokers who may have private investors involved in providing hard money loans or who know people who do this stuff. Classified ads in local newspapers are also a good source. 

Borrowers of hard money loans are not limited to real estate investors. In fact, buyers of very costly properties and even people who own huge homes also avail of private money because of lesser red tape and restrictions compared to conventional loans. Of course, homeowners facing foreclosure constitute a big part of the hard money borrowers. With a delinquent mortgage payment status and no sub prime lender willing to lend them money, they turn to private money loans. 

If you’re in dire need of finances to secure your home, you may decide to apply for a hard money loan. Just be sure that you choose a smaller amount which you can afford to pay and you plan well on how to repay the loan on time to keep you from incurring very high interest rates and being overburdened with too much debt. Remember this is should only be a temporary loan to help you recover from a bad situation. 

Related Article: Mistakes To Avoid When Borrowing from Hard Money Lenders

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