Hard money loan
Hard money is the money borrowed for the short period from private finance providers& is secured by real estate property. The period is usually one year, but it can be extended as per the wish of finance provider or borrower. The finance provider will give you money on the basis of value of property you are going to acquire. This property is in the addition of the property already kept as security by the borrower. The lender is less concerned about the credit rating or credit score while lending money as compared to the value of the property. Even if you have already borrowed money from bank or credit unions, you can still go for hard money loans provided you have property to be mortgaged as security. Any property such as residential, commercial, industrial, etc. can be mortgaged to the lender. Even land can be mortgaged to the lender. However, there are some private money providers so follow nation21cashloans.com - bad credit lending process, who do not accept all kind of property.
The rate of interest on money lend will be decided by the money lender. They may increase or decrease the rate after considering the time period of borrowing or value of property involved. Negotiation plays a major role in such kind of loans. You can develop a good relation with lender that will reap you benefits in the form of low interest cost.The interest rate rangesfrom 10% to 18% & is paid on annual basis. The finance providers also charge some points while granting money. These interest rates & points may fluctuate dependent upon the competition prevailing in different countries & states. Since lender under such kind of loans is more prone to risk, there is a possibility that he may charge a high rate of interest from the borrower. In that case, you will be required to pay a high rate of interest on hard money loans as compared to conventional loans. Points are charged at specific percentage calculated on the amount of money lend.
Loan to Value ratios
This ratio is calculated to ascertain the amount which finance provider will give as loan based on value of property. This ration will ascertain the percentage relation between two criteria; loan and property value.The loan percentage calculated from this formula will be applied on property value. The finance provider may grant money up to 60-70% of the property value and debt is a serious problem. The valuation of properties will be done on the basis of current market price. In some cases, if the borrower has incurred some amount in enhancing the value of the property, the money will be lend based upon such enhanced value. In other words, After Repair Value (ARV) shall be considered for calculating loan amount. The points charged will also be high in such cases.
Hard money Lender & his requirements
You can search for finance providers providing you hard money loans through Google search engine. There will be a long list of suggestions of lenders; you can evaluate them & make a choice. You can also attend local meetings of the clubs belongs to real estate investor to search out for hard money loan provider. Such meetings are attended by both finance providers as well as borrowers. If you could not find any finance provider in those meetings, you can ask for recommendations from investors who are present in the meeting. The credit worthiness is considered but not given much importance in such kind of loans. The lender may ask for a plan of borrower explaining in detail how he will repay the loan money. The time taken ranges between 7-14 days. You are not required to convince so many persons for loan approval in case of hard money loans as there is one finance provider. You are required to discuss with him all details regarding money borrowed & repayment procedure. If he is satisfied with your explanation, he will sanction the loan after discussing the terms & rate of interest.
Is hard money loan a good option?
This option is good only if loan requirement is for a short period. The rate of interest charged by finance providers under such kind of loans is very high, and if you are borrowing money for a longer period, you will have to bear the high-interest cost. It will not be considered as viable option if time period is long. Hard money loans are usually granted for a maximum period of 5 years, unlike other loans that may be granted even for 10 to 20 years. There are no strict guidelines required to be followed by the borrower as in the case of loans borrowed from financial institutions. The maximum terms of the loan shall depend upon the value of the property involved in borrowing. Such kind of loans is of much benefit for those businessmen who are in a quick need of money to use it for managing their business operations smoothly. Thus, it can be said that viability of hard money loan depends upon the money requirements.