A hard money loan refers to a type of loan. However, what makes it different from other types of loans is that it’s secured on real property. Moreover, they are considered short-term bridge or last resort loans. Basically, they are used in different real estate transactions. The lenders are either companies or individuals, not banks. Read on to know more.

Key Takeaways

Given below are some of the salient features of these loans.

• • Primarily, they are used for real estate transactions. And this money comes from a company or individual instead of a bank.
  • Typically, this type of loan is granted for a short period of time. The purpose is collect money quickly at a lower ration of LTV and higher cost.
  • Since these loans are not executed traditionally, the funding time is reduced is usually quite quick.
  • It’s interesting to note that the terms of these loans are negotiated between the borrower and the lender. Plus, these loans use the real estate as collateral.
  • Although repayment may result in default, they still leave a lot of profit for the lender.

How does a Hard Money Loan Work?

Usually, the terms of hard money loans are based on the value of the real estate, not the borrower’s creditworthiness. Since conventional lenders like banks are not the lenders, private lenders or firms are most interested in this business.

Also, these loans may be a good choice for property flippers who have plans to renovate a property and sell it again. Here you may be thinking the cost of this type of loan is quite high. But the good thing is that the extra cost is offset by the loan will be paid off rather quickly. In most cases, the loan is granted for a period of 1 to 3 years. Aside from this, they offer a lot of advantages as well.

Aside from this, this type of loan is considered a great investment as well. You can find a lot of people out there who have done this business and are happy with the practice.

Special Considerations

Typically, unlike the bank financing or the financing programs offered by government, the cost of these loans is quite higher for a typical buyer. However, this cost reflects the higher risk that the loan granter bears. But the great thing is that the extra cost is a worth it as the money is available quickly. The approval process is less stringent and the repayment schedule is also quite flexible.

Also, these loans can be a great choice to deal with turnaround situations. For instance, if you need money quickly for a short-term financing but you have poor credit score, you can give it a go. Since the amount is issued pretty quickly, you can use the funds to stave off a foreclosure, for instance.

Pros and Cons

Now, let’s take a look at some pros and cons of hard money loans.

Pros

First of all, the approval process is quite faster unlike the process of mortgage or a conventional loan. The thing is that private lenders are interested in this type of business as they can make decisions quickly without running a lot of checks. In other words, they won’t check your credit history. These are the steps that slow down the process and make the borrower wait for weeks.

Typically, these investors only care about the repayments. Plus, they have the opportunity to resell the property in case the borrower fails to make payments and becomes a defaulter.

Another advantage is that the lenders don’t apply the conventional underwriting process. Instead, they evaluate all of the cases one by one. Often, applicants can sit with the lender and discuss the repayment schedule based on their circumstances. Aside from this, borrowers can take advantage of a lot of opportunities during the time they have. So, this is another great advantage you can enjoy if you go for this option.

Cons

Since the real estate is used as a security against default, these loans feature lower LTV rations unlike the regular loans. This ration is between 50 and 70% unlike the ration of regular loans, which is 80%. However, if you are an experienced flipper, it can be even higher.

Aside from this, the interest rates of these loans are higher as well. For subprime loans, the rate of interest can be even higher. In 2019, for instance, the rates of hard money loans were between 7.5 and 15% based on the period the loan is granted for. By contrast, the prime interest rate was only 5.25% in the same period.

Another disadvantage is that these lenders may not offer loans against owner-occupied property because of compliance rules and regulatory oversight.

Hope, now you understand what hard money loans are and the pros and cons associated with them. For more information, you can consult your mortgage broker.

AnalytIQ Group can meet your needs if you are looking to get a loan to meet your needs.

Even with all the reopening of towns across America, some households may find themselves stuck trying to emerge from the setbacks caused by COVID-19. If you find yourself falling into this category, you may be looking into all the different options to get a little extra money now, especially when handling real estate matters. Have you considered what a hard money-lender could do for you?

What is Hard Money Lending?

Hard money lending is a form of financing that is asset-based. The funds a borrower receives are secured by the value of a property’s equity. Interest rates are higher on hard money loans versus the loans that are secured by a financial institution. This type of loans are funded by private entities that are secured by notes to private investors.

It works the same way like any other loans. You continue to make principal and interest payments monthly on the amount you borrow. You will have a repayment term that you must adhere to, just like any traditional loan.

Facts About Hard Money Loans

Here are some of the traits that are indicative of hard money loans:

• • These loans are broker protected
  • Residential and commercial loans
  • Stated loans
  • Terms can range from 11 months to 5 years
  • 1^st, 2^nd, and 3^rd position on all properties
  • No cash-out restrictions
  • Past bankruptcy, short-sales, and foreclosures are okay
  • Amortized and interest only programs
  • loans can be approved within six to 24 hours

Getting Approved for Loan

This type of loan requires that you have equity in a property. Once a lender looks at the equity the property has, then they will begin the normal lending process. The amount you will borrow will be determined by the amount of equity, ability to repay, debt-ratio, and your long-term goals with the property.

Your lender should advise you on all the fine details of the agreement like interest rate, prepayment penalty, terms, cost, title issues, among other important loan details.

Check with a local lender to see if what your options are and how a hard money loan may be able to help with your COVID-19 woes.

How a Hard Money Loan Can Help in Times of COVID-19

If you have a property with equity, you may be able to use it to get a loan. During COVID-19, mostly when it was at its peak, you might have had problems handling all of your bills. If you are struggling to get a loan and need extra cash to help get you by during this pandemic, you may want to explore loans and see if you qualify.

If you are struggling to get a loan and need extra cash to help get you by during this pandemic, contact AnalytIQ Group