What you should know about Hard Money Loan

When it comes to lending and borrowing, a lot of things are involved, there are risks as well as uncertainties. No one would want to give out a loan that will end up as a major loss or will probably never be recovered.

In giving out loans, a lot of measures and steps are taken, especially by the lender to ensure that the money being given out is secured, and though the money may not be able to be recovered, something (a property) can serve as collateral which is equal to the value of the amount being given.

That is just what we have when it comes to hard money loans.

What exactly is Hard Money Loan?

A loan can be gotten from almost anywhere, it can be from friends, families, organizations, and banks. For organizations and banks, loans always involve something more to ensure that the person being offered the loan can pay up, either with cash or in any other form.

When it comes to hard money loans, banks are exempted. We instead have more companies or individuals giving out the loan.

There always has to be a way of securing loans, and a hard money loan is always secured by a property. They are short-term bridge loans that are used in transactions relating to real estate.

For hard money loans, properties are usually being used as collaterals, and the duration is usually based on the short-term, so funds are quickly made available.

It is important to note that the collateral being put off to obtain the loan, is to guard against the risk that will occur if the borrower defaults in paying back the loan.

_{How does Hard Money Loan work?}

Contrary to other types of loans, the terms of hard money loans are not focused on if the person in need of the loan is creditworthy. It instead focuses more on the property that is being offered as collateral to acquire the loan.

Because banks don’t give out such loans, those who need quick funds to meet up their financial obligations, often look out for high-solvent individuals who will be willing to offer them the required amount they need, as far as they have a property which they are also willing and able to put out as collateral.

The risk involved in a hard money loan is usually high and this is the same with the interest being charged on the loan.

The cost of a loan when it is from banks or the government is quite low when compared to the cost of a hard money loan which can be gotten from private individuals or organizations.

The repayment schedule is quite flexible and the process of getting a hard loan isn’t so strict as it would be when obtaining loans from the bank of the government.  Though the borrowers may be one with poor credit, the fact that there is a property in their possession which they own gives them leverage to get the required loan quickly.

Advantages of Hard Money Loan.

Of course, one major advantage of the hard money loan is the fact that the process of obtaining such a loan is usually very quick and one doesn’t have to go through a strict process of documentation as it is with banks and the government.

Because the loan is often offered by a private individual, the decision-making process can be very fast, and a background check concerning the borrower’s credit history may not be necessary.

Another advantage of hard money loan on the part of the lender is that the lender doesn’t have to worry much about the repayment of the loan because there is a property that has already been given as collateral, and if the borrower fails to pay up, the property can be sold and more gain can also be made, knowing fully well that properties appreciate over time.

Also, hard money loans have few requirements before they are granted, unlike the requirements that are spelled out by other conventional lenders and banks. For hard money loans, the requirements are not too complex and strict enough to discourage you from obtaining a loan.

Disadvantages of Hard Money Loan.

One disadvantage of a hard money loan that is clear to see is that the interest rate is usually high when compared to what banks charge as interest. The reason for a higher interest rate for a hard money loan is a result of the high risk that will be borne by the lender and also the swiftness at which the loan would be provided.

Depending on other factors that may influence the interest rate, the rate is usually around 9-15%. For hard money lenders, a fee which they call “points” is also charged as a loan origination fee.

Another disadvantage of a hard money loan is that it is usually for short term use only. They are always written for a duration between one to two years, but there are also durations which involve three to five years, this is for the upper limit of the loan term length. With the loan term being longer, it is more risk involved for the lender.

For one considering a hard money loan, it is also pertinent to note that in as much as there are no many requirements like we have with banks, there is a requirement for a down payment or Equity which is at least 25-30%. This is a drawback on the part of the borrower and could stop them from further obtaining the loan, but it is for the benefit of the lender to ensure a reasonable level of safety for them, just in case of any issue which is likely to occur in the future.