Hard Money Lenders Since 1972
If you have bad credit, you may find you are unable to obtain a loan and cannot purchase a property you wish to acquire. Hard Money Loans assist those in this situation and act as a short-term bridge loan, or what is referred to as a loan of last resort. This type of loan is backed by the property value, rather than the borrower’s creditworthiness, allowing more to obtain property they wish to purchase quickly. Hard Money Loans typically have a lower loan to value (LTV) ratio than conventional loans. In addition, this type of loan typically has a high interest rate. In fact, the interest rate on this type of loan is higher than seen with subprime loans in most cases. What does one need to know about these types of loans?
Where To Obtain The Needed Funds
Individuals find there are numerous Hard Money Lenders to select from. Each lender features their own requirements when it comes to the amount they are willing to finance, or the LTV ratio. Some only work with certain types of real estate, such as residential or land loans, and most have a minimum and maximum loan size. If a hard money lender plans to work with residential clients, he or she is required to be licensed through both the National Mortgage Licensing System (NMLS) and their state regulatory agency. In addition, many states now demand the NMLS number be located on all loan documents before closing may take place. Some may choose to work with private money lenders in this situation.
Private Money Lenders
Some individuals choose to fund loans of this type in the hopes of receiving a higher rate of return on the funds they lend. Of course, the lender is risking the loss of his or her money. To reduce the risk of this loan, a private money lender may request a property deed in their name. In addition, the lender may choose to require insurance on the property being funded. If the borrower defaults, the lender may then take the property and sell it to get the funds back. Certain lenders don’t require a credit check or loan amortization and, in some states, private money lenders aren’t required to have a license until they have conducted more than a certain number of loans within a specified time period. When one goes this route, the borrower needs to take care, as the private lender tends to move quickly in the event of a default to recover their funds.
What Other Factors Must One Know About Loans Of This Type
The interest rate with this type of loan doesn’t correlate with the bank rate. Lenders base the rate on the current real estate market along with the availability of credit in the hard money market. Rates may also rise when a borrower defaults, as high as 25 to 29 percent. Some include a prepayment penalty in the loan documents and others don’t. In addition, expect to pay one to three points more with a residential hard money loan and four to ten points more on a commercial loan. Always have an attorney review the documents before proceeding.
Consider the above before obtaining a hard money loan. There are numerous benefits to doing so, especially for those with credit issues. Many find this is the solution they’ve been searching for, yet one must take care to work with a reputable lender to get a reasonable deal. Hard money loans are a great choice for many, thus it is one option anyone should look into.