Hard money loans are loans that are secured by real property. This would be considered a more short term loan. These loans are usually last resort when all else fails. You will see these typically used in real estate with the lender typically being a private investor or not a bank or company.
Property is typically used as the collateral, the credit “worthiness” of the borrower is typically not included in the deal. This venture is typically considered more risky so banks and companies stay out of the mix, typically it is private individuals doing this.
Hard money lenders are usually targeting property flippers who plan to restore of renovate homes in order to flip them.
The approval process of a hard money loan tends to be much quicker than applying for traditional mortgage loans. The privates investors who back the hard money loan are able to act on critical decision making faster because the the lender is backed by collateral rather than financial criteria.
Having a good relationship with the lender can help the approval process along even smoother. Hard loan investors aren’t concerned as much with receiving repayment because there may be an even greater opportunity to resell the property if the borrower cannot repay the debt.
Hard money loans typically have lower LTV ratios than more traditional loans since the property itself is used as protection against default.
Interest rates tend to be higher and can be higher than subprime loans. The average interest rate for a hard money loan is 11.25% with rates varying from 7.5% to 15% in the U.S.
Hard money lenders might opt out of financing for owner-occupied residence due to regulatory oversight and compliance rules.
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