The term hard money loan may not conjure up a rosy picture for everyone that hears it. This is due to a common conception that they are a bad thing. While it is true hard money loans have had their reputation tarnished a bit by bad actors in the financial industry today we operate in a much healthier environment. We will set the record straight about hardline loans in the following article.
Hard Money 101 Just The Facts
We will bring you just the facts on several key areas about this intriguing industry. What are hard money loans really? When are these types of loans appropriate? What kind of requirements must the borrowers meet to qualify for these types? And more.
What Is A Hard Money Loan
The hard money loan is any loan that is both short-term and secured with real estate. These ones must also be funded through private actors rather than institutional investors such as banks or credit unions. Most commonly they will be for terms of around 12 months but they can be extended for as long as five years. The payment structure or amortization of these loans will be varied depending upon their terms. The amount of money that the borrower will qualify for is primarily reliant upon the value of the collateral that they are using. Lenders who will loan hard money loans are mostly concerned with the value of the property that is being used as collateral and not upon the creditworthiness of the borrower
What Type Of Collateral Can You Use
The preferred type of collateral for a hard money loan will always be real estate. Pretty much any kind of property is capable of being used as collateral for hard money including but not limited to single-family homes commercial property undeveloped land and industrial property. Lenders may be specialized with one type of property or another but if you run into one who is unwilling to do business with you is of the type of collateral you have to put up that means that you simply need to find another lender. The only difficulty that you may run into is whenever you are trying to use a piece of property that is currently occupied by yourself as collateral. Ever since the Dodd-Frank act, there is a mountain of extra regulatory steps and paperwork that lenders must go through in order to finance these types of deals and many will simply not do business with you just to avoid the paperwork.
What Should A Hard Money Loan Be Used For
These kinds of loans are great for particular scenarios but certainly should not be used in every situation. If you are generally a creditworthy person and could likely get financed at a decent rate through a traditional bank then you should not be considered a hard money loan. Hard money loans are going to be the best option for many people that are going through foreclosure or have other marks on their credit reports that make them ineligible for financing through traditional lenders.
Who Should Use A Hard Money Loan
The people who will always benefit the most from hard money loans will be real estate investors. This way they can obtain financing for their investment projects while obtaining the properties themselves. Oftentimes hard money loans are capable of being funded within one week compared to over a month with conventional ones. This can help significantly with the turnaround time for a real estate investor in an industry where time is everything.
We hope this quick Hard Money 101 guide help you navigate the decision making process of your next hard money loan application.