Most people think that hard money loans are far from being a legitimate or realistic option when borrowing money. The image is only slightly higher than a loan shark, but that is due to ignorance and does not really apply to a hard money loan. In reality, a hard money loan is simply a loan that is secured by real estate, is normally for only a shorter time frame and is funded by a private lender and not a traditional bank or lending institution. Hard money terms tend to range from about one year to as long as five years. The loan requires a monthly payment which is comprised of principal and interest or in some cases only interest as well as a final balloon payment at the end of the term.
One of the great benefits of hard money loans is that the approval for the loan is not based on the borrower’s personal credit history or even his or her income. This fact makes it much easier for someone who has less than perfect credit to qualify for hard money. The main qualification for a hard money loan is the property’s current market value. The lender uses what is called the loan to value ratio to determine how much money can be borrowed. In most cases, the lender will loan no more than 70% of the current market value of the property. This is the lenders limit so that there will always be equity in the property. In the event of the borrower defaulting on the loan, the lender has the ability to sell the property to recover his or her full investment.
Hard money lenders are normally willing to offer loans for almost any type of property including an investment single-family home, multi-unit properties, commercial properties and even land parcels. This broad range of properties makes hard money a great for construction loans for a speculative property, fix and flip investors, and the purchase of large investment residential or commercial properties.
Who Can Benefit From Hard Money Loans?
Real estate investors tend to favor hard money for many reasons. First, the loans require much less documentation and application paperwork. In addition, the loans fund in as few as 5 days which is substantially less than a traditional loan which can take months for approval. Making an offer to a seller and specifying that the buyer is using hard money, is often seen as a huge advantage by sellers and can set an offer apart in the event of a multi-offer property sale.
No Credit – No Problem
Borrowers who have no credit or have a poor credit history are not going to be able to secure a loan from a traditional lender. But hard money offers those borrowers a legitimate option for their lending needs. Understanding what hard money is and how the loans can be used is an important step in making the best choice when searching for a loan.
Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Office: (623) 582-4444
dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
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