What is a hard money mortgage lender and why should you care about it? Those are likely some of the first questions that you have when you first hear about this topic. It is fair that you would want to know as much as possible, particularly if you plan to borrow money from private individuals and don’t know much about how to define hard money loan.
The simple textbook answer for how to define this loan is that it is a mortgage loan that is backed up with real property (collateral). Current hard money rates are a bit lower than a traditional mortgage rate simply because they have something of tangible value to back up your promise that you will pay your mortgage faithfully on the loan. If you fail to meet your obligation, then the lender can simply take your property from you.
Big money lenders don’t often deal with hard money loans as much as the smaller lenders, and that is why you should review your entire universe of options before settling on any particular type of loan. You might just find that there are better options for you if you borrow from an individual or small lender.
Whether you’re looking to buy a home or start a business, you may be shocked by how difficult it is to secure a traditional loan. Loans have become a part of American life, and it is precisely because of this system that it is so difficult for young people in particular to get the loans that they really need. Most Americans go to college in some capacity — but even a semester at a public state college cannot, in many cases, be paid for without a loan of some kind. This loan doesn’t necessarily do good things for a person’s credit, especially when they are young and barely have a credit history to speak of. With that being said, this shouldn’t stop them from buying houses or starting business ventures — yet too often, it does. Luckily, there are ways through which people can get the loans they need without turning to — and often being subsequently turned down by — banks. Hard money loans make it possible for people to get the money they need quickly, and they come with other benefits as well. Hard money loans don’t need to be last resorts, either — for many, they are first choices. With that being said, let’s look into hard money loans and why, for some, they are preferable to traditional loans.
What Are Hard Money Loans?
Hard money lenders approach loans in a way very different from that of big banks. An asset-based loan, a hard money loan is secured through property. Therefore, they are often issues by private investors or companies, rather than entities like banks. A hard money loan would be secured by someone who has equity — a number that includes a surprising amount of people under the age of 35. Part of the appeal of a hard money loan is that, due to the fact that most mortgages are 15 to 30 year mortgages with increasing home prices, the amount of equity people own increases with time. As such, the average of equity owned by a person under the age of 35 is $20,000. A hard money loan may be a good option for those looking to buy a second home, a retail space, or another asset of some kind. It’s certainly a great option for people who want to start a business. While hard money loans may not be ideal for those looking to buy their own homes as it requires equity in a home in most cases, for people who have inherited a home it could be an option. Certainly, a private hard money lender is easier to work with than a traditional lender.
Why Can’t I Get A Traditional Loan?
Due in part to recent events like the housing crisis and the recession, it is becoming increasingly difficult for people to get loans of any kind. Even student loans often require co-signers. And as we mentioned before, if you have a high amount of student debt, this can work against you taking out a loan for another reason — even if you’ve been paying off that debt on a regular basis. Research shows that in order to be approved for a business loan from most traditional lenders, a person has to be at least two years in business, have at least $250,000 in annual revenue, have good personal and business credit, and be cash flow positive. For many, this is a standard that is difficult if not impossible to reach in a reasonable amount of time.
What Is The Duration Of A Hard Money Loan And What Are The Interest Rates Involved?
While all hard money loans are different from each other, you can expect a few things. Usually, a private loan has a shorter duration — they typically can only be granted with a duration of 5 years. Some view this as a good thing, as they won’t be paying it off for decades. As for interest rates — these are usually higher, at 15% to 18%, or more.