Hard money loans are used by individuals who need quick financial solutions and either cannot wait for or do not qualify for conventional banking approvals. These types of loans are specific in nature, being backed by collateral in a piece of property that can be quickly sold at a profit for both the borrower and the lender. Real estate investors are the primary borrowers of hard money loans. The funds allow the investor to purchase a property at a low price, do any repairs or renovations and then resell the property within a short period of time.
Another large segment of hard money loans are used by individuals with financial problems who may be facing foreclosure or are already in foreclosure. These borrowers want to stop the proceedings in order to sell the properties to clear up their problems or keep the properties while trying to get mortgage refinancing at monthly payment rates that can be maintained. As with commercial real estate, hard money loans for individuals are based on the resale value of the home and are short term in nature, being made for a few months up to a couple of years.
<strong>HARD MONEY LOAN BASICS</strong>
Hard money lenders will estimate the resale value of the property, the current real estate market where the property is located, and the potential for a quick sale. The lending rate on a property is between 50 to 70 percent of the market value and a loan is used to pay off the current mortgage so the hard money loan becomes the first mortgage. If the borrower does not pay as agreed, the lender can foreclose and sell the property to recover the amount of the loan. Lenders charge a high rate of interest and more points than banks. Hard money loans help borrowers survive a short rough period that will end in positive results for both the lender and the borrower.
<strong>FORECLOSURE LOAN ASSISTANCE</strong>
Home owners facing foreclosures who want to save their homes or sell them and currently have 30 percent or more equity in their homes, might consider hard money loans. A hard money loan must pay off the current mortgage holder and make the hard money lender the first mortgage. The loan will be expensive for a short period of time, but it allows the home owner the option of selling the home or getting new financing with a lower interest rate for a longer period of time.