Understanding What A Hard Money Loan is?
A hard money loan is simply a short-term loan secured by real estate. They are funded by private investors as opposed to conventional lenders such as banks or credit unions. The terms are usually around 12 months, but the loan term can be extended to longer terms of 2-5 years. The loan requires monthly payments of only interest or interest and some principal with a balloon payment at the end of the term.
The amount the hard money lenders are able to lend to the borrower is primarily based on the value of the subject property. The property may be one the borrower already owns and wishes to use as collateral or it may be the property the borrower is acquiring.
Hard money lenders are primarily concerned with the property’s value rather than the borrower’s credit (although credit is still of some importance to the lender). Borrowers who cannot get conventional financing due to a recent foreclosure or short sale can still obtain a hard money loan if they have sufficient equity in the property that is being used as collateral. When the banks say “No”, the hard money lenders can still say “Yes”.
Property Types for Hard Money Loans
A borrower can get a hard money loan on almost any type of property – including single-family residential, multi-family residential, commercial, land, and industrial.Some hard money lenders may specialize in one specific property type such as residential and not be able to do land loans, simply because they have no experience in this area. Most hard money lenders have a specific niche of loan they are most comfortable with. Ask them upfront which type of loans they are willing and able to do.
Many hard money lenders will not lend on owner-occupied residential properties due to the extra rules and regulations but there are those who are willing to wade through the paper work with the borrower. All hard money lenders will do loans in 1st position, while fewer will do 2nd position due to the increased risk for the lender.