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What Is Hard Money Loan ?
A hard money loan is a loan offered with a piece of real estate as security. |
Hard money loans are aimed at borrowers who cannot find financing from any other direction. People, who have nowhere else to turn, invariably turn to hard money lenders to get themselves out of a financial crisis.Hard money loans are not meant to be long term loans. They are, in a nutshell, quick-fix loans that serve the need of the hour. While commercial banks or mortgage companies would never invest in unsure properties or borrowers with bad histories, hard money lenders take on all these anomalies and more.
There is of course a catch to the situation. If you need a hard money loan, you will have to be prepared to pay a hefty price for it. Hard money rates are not influenced by prime rates of the period. Instead they depend on the real estate market rate as well as a demand and supply mechanism. When the amount of hard money available in the market goes up, the rates come down and vice versa. Today, hard money rates float in the 9 percent to 21 percent range, almost always assuming double digits.
A hard money loan has a much lower loan-to-value ratio than a conventional loan. While, with a conventional mortgage you may be able to secure 100 percent of the value of your property as financing, a hard money loan offers a maximum of 65 percent of the value of the property. This reduces the risk for the lender and makes the whole situation more viable.
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