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What Is A Hard Money
Loan?
A hard money loan is an often used term but most people are not
100% sure about what this term really means. With the many
different definitions floating around it is hard to know which
one is right.
A hard money loan is different from a bank loan because the
person taking this loan usually does not have any collateral
and is a high risk customer. This is why they are not eligible
for a bank loan and are forced to find a hard money loan. The
money is usually loaned from a private business or investor.
This loan is given based on their property value, as this is
given as their one and only collateral, taking into account the
borrower’s inability or willingness to pay back this loan. A
hard money loan normally has an extremely high interest rate
but lower Loan to Value Ratios.
Hard money loans are almost always a last resort for the
borrower. Finding a hard money lender is not an easy task
unless you are desperately searching for one like most of their
customers are. Their customers have already been turned down by
the bank because of bad credit or other financial problems, now
their only chance is to select this method of funding.
It is important to be clear that hard money lenders are not
like loan sharks or other black market lending. This is a
legitimate way to retrieve a loan if you are in dire need. They
do look at their clients and their property to ensure that in
the event that the customer cannot pay the loan, their homes
and property possess enough value that the lenders can make a
profit when they foreclose it.
People and businesses who buy expensive properties and who
already own such homes and want to cash out large amounts of
their equity via refinance loans also turn to private money.
Real estate investors also use these forms of financing to
avoid the terms and conditions of any bank loan. These buyers
purchase properties for almost nothing, fix them up and sell
them for profit. They use private loans because the loans come
with less red tape and restrictions than bank loans.
Hard money loans have many different types of borrowers and
lenders. It is a growing industry.
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