Theoretically speaking a hard money loans means funding a potentially viable project
for which financing may not be easily available from conventional
sources. In simple terms, the risks involved are greater, and
so are the interest rates.
Fact remained that hard money loans could be for bridge financing, debt
consolidation, acquiring property, commercial deals and many
other purposes. In an ideal scenario lending decisions and loan
disbursement are quick. More often than not, collateral is required.
If experts are to be believed the general practice is to advance
40% to 70% of the value of the security offered. Point to be
noted in this regard is that in some cases, loans beyond this
limit would be considered. As a matter of fact only applications
for amounts above a specified minimum amount are entertained.
There is no hiding the fact that certain lenders refuse to advance
money on the collateral of properties on which the borrower
or his close relatives stay. It is worthwhile remembering that
lenders often consider bad credit and high-risk applicants who
may find it difficult to borrow elsewhere.
It is worth mentioning in this regard that the major players
in this field are lenders and brokers. More often than not the
borrower can approach either group. In addition the function
of the brokers is to put the potential customer in touch with
interested lenders, and offer advice on the best bargains. On
the other side of the coin quotes from three or four probable
lenders would be presented to the borrower.
Naturally, there is no denying that there is likely to be a
fee for the services. In case if the lender is approached directly,
there would be some savings, but most borrowers may not know
Whom to approach-
It is advisable that you be careful of lenders or brokers who
ask for a payment up front. Fact remained that they may be genuine
operators, but there are others who would process a loan application
without an advance. At the present juncture, the going interest
rates seem to be around 14% to 18% per annum, payable monthly
in most cases. On the other side of the coin the annual interest
amount is divided by twelve to arrive at the monthly installment.
Always remember that there is an element of hidden cost in this.
There is no denying that hard money lending caters to a real
According to experts the hard money loans is a private loan
in which actual cash is transferred from the lender to the borrower
for the purpose of making a large purchase, usually a real estate
purpose. It is worthwhile remembering that the hard money loan
is unusual because of the large transfer of hard money rather
than the exchange of money through seller or lender carrying
on the home. In an ideal scenario the hard money loan is a risky
loan for lenders and often comes with a high interest rate.
However, fact remained that because the hard money loan is a
private loan, the terms and agreements of the hard money loan
are generally negotiable.
Understanding the hard money loan
Point to be noted in this regard is that the hard money loan
is often expressed in complex real estate terminology which
makes it difficult to understand but the hard money loan is
actually a very simple concept. As a matter of fact it is the
provision of an actual cash loan made to a borrower by a private
lender. In an ideal scenario the hard money loan is not subject
to the stringent guidelines of a federal or conglomerate lending
institution and is therefore negotiable with the lender.
People who apply for the hard money loan
Theoretically speaking the hard money loan is a private loan
that does not require the same stringent guidelines as other
loan types. Because of this simple reason, the hard money loan
is often sought by people who:
* Have a history of bad credit
* Have no credit
* Have previously had a home foreclosure
* Have unverifiable income
* Must refinance immediately
* Need hard money
In other words
It is worth mentioning in this regard that another way of thinking
about the hard money loan is to consider it the pawn shop equivalent
for real estate. There is no hiding the fact that the hard money
loan is available with few questions asked and is given in cash.
In simple terms the cash can be used, as intended, for the financing
of the home or it can be used by the borrower in some other
fashion. Either ways, one can safely say that the hard money
loan will still need to be repaid and the home is at stake.
More often than not this makes the hard money loan a risky loan.
Pros and cons to a risky loan
There is no denying that the hard money loans is risky to the lender because of the
commonly poor credit history of the hard money loan borrower.
This clearly emphasizes the point that the hard money loan lender
is in a prime position to charge a high interest rate and excessive
repayment failure penalty fees. More often than not this puts
the hard money loan borrower in a negative position. On the
other hand the benefit is that, as a private loan, it is easier
to qualify for the risky loan and the terms are somewhat negotiable
in comparison to other loan types.
According to experts the hard money loan is risky for the borrower
because of the accessibility to large amounts of cash. As a
matter of fact the hard money loan provides cash to the borrower
that the borrower must be responsible for in terms of using
it appropriately. In addition failure to make repayment on the
hard money loan can result in excessive debt, bad credit and
even home foreclosure. Furthermore the responsible hard money
loan borrower will be able to avoid these pitfalls but the irresponsible
or immature borrower should think twice before applying for
and accepting the hard money loan.
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