A hard money loan is a type of loan that is secured by a valuable asset like real estate. In most cases, this type of loan is mostly used for the purchase of commercial real estate, fix and flipping, or private funding in some cases. Hard money loans are offered by private lenders.
The property you are purchasing as the borrower is used as the collateral. Hard money loan lenders usually offer a loan which is 70% the quick sale value of the property. Many borrowers usually opt for a hard money loan as the last resort mostly during times of financial distress since real property is used as security.
The private capital investors who deal in hard money loans look at the money making capabilities of the venture the borrower wants the hard money loan to finance. Most of them do not pay attention to the borrower’s credit rating.
Compared to the standard mortgage interest rates, hard money loan interest rates are usually a bit higher. Phoenix hard money loans are not tightly regulated by the government therefore the rules that apply to the standard financing may not apply to the hard money loans.
A hard money loan is usually a good source of quick capital especially if your business or financial status is ailing since the loan is usually speedy and efficient. Unfortunately, predatory lending tactics are common driving up the price of the loan, so it is smart to seek the services of a professional to assist you during the transaction.
Other traditional lending institutions demand regular payments. With hard money loans, the lender will go soft and may offer you flexible loan repayment terms. Some of the lenders may only need interest to be paid at the end of every month or some may only need a balloon repayment at the end especially if you are going through a hard time.
Hard money loan lenders usually charge a fee equal to 2.5%-5% of the gross amount of the loan. Other charges involved may include application/ inspection fee, a loan processing fee and a document preparation fee.
There are also some other third party fees like account servicing fees, title insurance fees and escrow fees. Some of the lenders may charge junk fees, so make sure you have an attorney or qualified professional to look at the paperwork or read the paperwork very carefully.
Many savvy investors use hard money loans to finance renovations and repairs. Close the transactions fast and set up a separate escrow account with your lender to pay for the repairs and renovations in your property.
In order to get hard money loans, you need to have an appraisal. However, good comparable sales information can make the lender waive the appraisal requirement. Therefore, make sure you have one of these just in case.
Hard money lenders prefer to finance those properties around the areas they are located. This is to help them monitor the property properly. The lenders choose areas where they feel comfortable and are familiar with.