When it comes to asset-based financing for people with bad credit, or people who need money urgently, hard money loans are very popular. These are loans issued by private investors and individuals who see an investment opportunity on this high risk type of lending. The loan is normally secured by the value of real estate property, so individuals who have high value properties can borrow more money.
Normally, lenders must consider the current market value of the property before they can decide to award the loan. Other factors such as credit rating and income may be considered, but the value of the property is the most important factor of consideration. Borrowers can expect to get a loan of between 65 to 70 percent of the value of the property. For instance, a person who has a house that is value at 200,000 can get a 130,000 to 140,000 loan.
Banks normally offer a much lower interest rate compared to what lenders charge on this type of asset based financing. The loan value is also much lower than the asset value. This is meant to compensate the lender for bearing the risk of lending to individuals who are likely to default.
Hard money loans are suitable for individuals who have a lot of equity in their homes. After procuring the loan, the outstanding mortgage balance can be settled fully. The house can then be sold and the hard money loan settled. This will leave the borrower with a huge chunk of cash to buy a new house and remain with some pocket change. While this may seem extreme, it can help to prevent foreclosure and protect your credit rating. Alternatively, the homeowner can continue servicing the new loan after buying back the house from the mortgage lender.
The lien position of the lender on the property depends on a number of issues. If the lender cannot get the first lien position, a junior position would be accepted if another property is also included as collateral. Unfortunately, most property owners do not have a second property, so a second lien position may just be accepted without additional requirements.
The repayment period for this type of loan normally ranges from less than a year to around three years. Within this period, the borrower is expected to have finished repaying the loan. A penalty is normally charged by the lender if the borrower fails to honor the terms of the loan contract. The penalties together with the high interest rates can increase the outstanding balance significantly. Therefore, borrowers should always have a sound plan on how they intend to repay the loan before they start looking for a lender.
Some people assume that these loans are the same as bridge loan facilities. Well, they may have the same qualification criteria, terms and conditions, but they are used in different circumstances. A bridge loan is used for bridging purposes only, but a hard money loan is used by distressed property owners to avoid foreclosure or bankruptcy.
The process of procuring hard money loans may be a little bit more complicated than getting a traditional bank loan. However, it may be the only option that you have at your disposal. When looking for a lender, consider searching the Internet for the best private lenders.
Normally, lenders must consider the current market value of the property before they can decide to award the loan. Other factors such as credit rating and income may be considered, but the value of the property is the most important factor of consideration. Borrowers can expect to get a loan of between 65 to 70 percent of the value of the property. For instance, a person who has a house that is value at 200,000 can get a 130,000 to 140,000 loan.
Banks normally offer a much lower interest rate compared to what lenders charge on this type of asset based financing. The loan value is also much lower than the asset value. This is meant to compensate the lender for bearing the risk of lending to individuals who are likely to default.
Hard money loans are suitable for individuals who have a lot of equity in their homes. After procuring the loan, the outstanding mortgage balance can be settled fully. The house can then be sold and the hard money loan settled. This will leave the borrower with a huge chunk of cash to buy a new house and remain with some pocket change. While this may seem extreme, it can help to prevent foreclosure and protect your credit rating. Alternatively, the homeowner can continue servicing the new loan after buying back the house from the mortgage lender.
The lien position of the lender on the property depends on a number of issues. If the lender cannot get the first lien position, a junior position would be accepted if another property is also included as collateral. Unfortunately, most property owners do not have a second property, so a second lien position may just be accepted without additional requirements.
The repayment period for this type of loan normally ranges from less than a year to around three years. Within this period, the borrower is expected to have finished repaying the loan. A penalty is normally charged by the lender if the borrower fails to honor the terms of the loan contract. The penalties together with the high interest rates can increase the outstanding balance significantly. Therefore, borrowers should always have a sound plan on how they intend to repay the loan before they start looking for a lender.
Some people assume that these loans are the same as bridge loan facilities. Well, they may have the same qualification criteria, terms and conditions, but they are used in different circumstances. A bridge loan is used for bridging purposes only, but a hard money loan is used by distressed property owners to avoid foreclosure or bankruptcy.
The process of procuring hard money loans may be a little bit more complicated than getting a traditional bank loan. However, it may be the only option that you have at your disposal. When looking for a lender, consider searching the Internet for the best private lenders.
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