Everything You Need to Know About Hard Money Loans
When you hear the words “hard money loan,” which is also called a private money loan, what is the first thing you think of? For some, it’s shady lenders who conduct these transactions in a dark alley and implement predatory lending methods?
If so, you aren’t alone. Unfortunately, in the past few years, a few “bad apples” in the industry made a bad name for the legitimate companies offering hard money loans that actually provide benefits. If you want to know the truth about hard money loans and what they have to offer, keep reading.
The Hard Money Loan Explained
Put simply, hard money loans are short-term loans that are secured by real estate. Funding comes from private investors, rather than conventional lenders, such as credit unions and banks. Usually, the terms of these loans are around 12 months; however, the actual term can be extended to a period of two to five years, if necessary. Only interest payments must be made monthly and some principal, with a balloon payment when the end of the term arrives.
How Much are Hard Money Loans For?
The total amount of money you can borrow with hard money loans is dependent on the value of the property being offered. The property can be something you currently own, or it can be the property you plan to purchase with the funds. Usually, lenders offering the hard money loan are more interested in the value of the property, rather than the borrower’s credit history.
If you are unable to acquire conventional financing because of a short sale or foreclosure, you can still get a hard money loan if there is enough equity in the property that is being offered as collateral.
What Types of Property Can be Used for Hard Money Loans?
Borrowers can receive a hard money loan for virtually any property they have, including industrial or commercial properties, land, multi-family residential properties, or single-family residential properties. There are some lenders that may specialize in a certain type of property, but they are usually upfront about this.
When it comes to hard money loans, the truth is, they can be extremely beneficial if you own property and need funds that you can’t acquire from a bank. Be sure to keep the information here in mind to know if a hard money loan is a smart option. Doing so can help ensure you get the money you need and that you don’t fall victim to predatory lending practices.