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Usually hard money loan is given by either individuals or companies that have the money available to give out as private loans. People who cannot get loans from conventional lenders apply for this type of loan. This invariably happens when borrowers have a credit score lower than 500.
Many real estate developers prefer hard money loans because lenders do not take the low credit scores into account. Even people facing foreclosure approach these lenders. These loans get processed speedily as they are restricted by the rigid loan criteria set by conventional lenders.
Hard money lenders lay more emphasis on the property against which they give out the loans. The property offers the security in this high-risk loan. If the property is a viable investment, getting the loan is not a problem. No lender gives more than 60 to 70 percent of the property’s value, and if the borrower defaults on the loan, the lender has the comfort of recouping his investment through the property.
One always has to pay higher interest rates in addition to points. Usually the loan repayment period for hard money loans is shorter, but the repayment schedules are extremely flexible. Interest rates vary from lender to lender but are normally between 12 percent and 18 percent, and points are between 2 to 10 points. The loan term can be from 6 months to 5 years.
There is no doubt that in hard money loans, the terms are more favorable for the lender than the borrower. However, these loans are an important resource for borrowers who cannot or do not want to use conventional sources of funding. These loans are perfect for those looking for short-term financing options.
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