June 18th, 2018 5:33 PM by Jackie A. Graves, President
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“hard money lender” is used to describe lending outside of traditional banks or
credit unions to an individual or a business. Hard money loans are usually
funded by an investor or a group of investors.
borrowers secure their loans through equity rather than creditworthiness. This
is why these types of loans are also referred to as equity-based loans. Instead
of borrowers submitting financial documents and going through credit checks,
they put up a large down payment, which helps offset the lender’s risk.
loans come with shorter terms (around two to five years), higher interest rates
and hefty processing fees.
get a hard money loan?
typically pursue a hard money loan because they either don’t qualify for a
conventional loan or they need the money quickly.
conventional loans, which can take weeks to process, hard money loans can be
ready in a couple of days.
who buy properties, renovate them and resell them for a profit, known as
property flippers, will often get hard money financing, says Julie Aragon, a
Los Angeles-based mortgage expert.
flippers like hard money loans because they can get the cash fast,” Aragon
says. “This expediency is beneficial when they’re bidding on a property. They
will have the advantage over someone who might need a month to close.”
who don’t qualify for traditional loans
many reasons some borrowers don’t qualify for a traditional loan, such as a
30-year fixed-rate mortgage from a bank. These reasons might include a recent
divorce that affected their credit score or the inability to document their
income. For business owners, proving income can sometimes be challenging, which
might make it impossible to secure a traditional loan, Aragon says.
people who write everything off might be able to afford a mortgage, but their
taxes don’t reflect that,” Aragon says. “For them, hard money loans are their
facing foreclosure with substantial equity in their home
group is a less common borrower type than the other groups, there are people
who have a lot of equity in their home but are at risk of getting foreclosed
lenders would consider lending to these people if they can be assured that, if
the loan goes into default, they can sell the house, pay off the first mortgage
and still earn a profit from the sale.
and cons of hard money loans
your situation, a hard money loan can be a helpful tool or it can be a costly
mistake. Most experts agree that hard money loans are a short-term solution,
not a replacement for traditional mortgages.
for hard money lending
lenders are subject to federal and state laws, which bar them from lending to
people who cannot repay the loan. By law, hard money lenders have to establish
that a borrower has the means to make both the monthly payments and any
scheduled balloon payment.
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