What is a Hard Money Loan?
A hard money loan is a loan that is secured by real property. They are considered “last resort: or short-term bridge loans.They are used usually in real estate transactions, with the lender being an individual or company vs a bank.
How do they work?
Terms are usually based on the value of the property being used as collateral, not the creditworthiness of the borrower. Hard money lenders are generally individuals or companies that see value in the type of venture. These loans are highly sought by property flippers who are looking to renovate and resell the property. They use the property as collateral for the financing. Timeline of resell is usually under a year. It is possible for homeowners to obtain a hard money loan as well.
What’s the cost?
The loan to the borrower is typically higher than financing available through banks.The increased expense is a tradeoff for faster access to capital, less stringent approval process, and flexibility in the repayment schedule.
Positives & Negatives of Hard Money
- Private investors who back the hard money loan can make decisions faster.
- Approval process tends to be quicker.
- More flexible guidelines
- Possibly no appraisal
- Interest Rates tend to be higher, even higher than subprime loans.
- Since property itself is only protection against default, they usually have a lower LTV ratio than traditional loans.
- The hard money lenders may elect not to provide financing on owner-occupied residence.
- Some hard money lenders may require proof of experience before they lend.
For more information on how to obtain a hard money loan, please call me.