What Is A Hard Money Loan
When a person is really strapped for cash, and there is no where else to turn, a hard money loan might be the answer. Hard money loans are not like a typical unsecured loan, but rather, the amount of the loan is based on the value of a given commercial or private property.
For example, say a borrower has a property that is worth 100,000 dollars. Most hard money lenders would look at that and lend usually between 65 and 70 percent of the value of the home. In this case, the amount of the loan would be 70,000 dollars.
Commercial loans of this type are also available. These are usually issued when a company is in desperate need of capital and cannot find a loan any other way. Regulation is virtually non-existent and money is usually given out by private investors.
These types of loans originated in the 1950’s after Congress passed a series of laws reforming the credit system in the US. Hard loans are also popular in Canada. Regulation of the loans is different depending on what state you are in, but most states do have laws restricting how much interest can be charged. In general, these types of loans carry higher interest rates than a home loan or a personal loan from a bank.
The nice thing about hard money loans is that the loan is not contingent on a credit score. Rather, the loan is contingent on the fact that the lender is able to sell the house as collateral for the loan. If a borrower defaults, the lender is allowed to take ownership of the house and sell it to get back their money.
Hard money lenders are unique in the fact that they are separate from a bank. They rely on the value of real estate to make their money. Therefore, hard money types of loans are harder to come by when the real estate market is not doing well.
A hard money loan is not fairly common, but it is an option for a business or residential property owner who needs money in a bad way. However, it is better, and comes with more protections, to go to a bank and ask for a loan first.
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