When it comes to asset-based financing for people with bad credit, or people who need money urgently, hard money loans are very popular. These are loans issued by private investors and individuals who see an investment opportunity on this high risk type of lending. The loan is normally secured by the value of real estate property, so individuals who have high value properties can borrow more money.
Lenders normally offer a loan to value ratio ranging from 0.65 to 0.75. This is normally based on the current market price of the property. This means that if you have a house that is valued at 100,000 dollars, you may qualify for a 65,000 to 70,000 dollar loan. While the lender may also consider your credit score and annual income, the value of the property is the main factor of consideration.
The interest rates charged on these loans are normally higher than what banks and other mainstream lenders charge. The loan to value ratios are also normally very low. This is meant to compensate lenders for the high risk they take when they decide to lend to distressed borrowers.
This credit facility is best suited for property owners who have a lot of equity in their property. If the bank intends to initiate foreclosure proceedings unless the outstanding loan is fully settled, this loan may come in very handy. The funds can be used to pay off the outstanding mortgage balance. The house can be sold and the short term loan settled fully. Alternatively, the borrower may decide to repay the new loan using monthly installments.
When you borrow several loans using the same security, the lenders will always want to get the first lien position. However, this is not possible. Others will have to settle for a junior position. Those who take a second or third lien position may ask for additional security.
The repayment period for this type of loan normally ranges from less than a year to around three years. Within this period, the borrower is expected to have finished repaying the loan. A penalty is normally charged by the lender if the borrower fails to honor the terms of the loan contract. The penalties together with the high interest rates can increase the outstanding balance significantly. Therefore, borrowers should always have a sound plan on how they intend to repay the loan before they start looking for a lender.
Some people assume that these loans are the same as bridge loan facilities. Well, they may have the same qualification criteria, terms and conditions, but they are used in different circumstances. A bridge loan is used for bridging purposes only, but a hard money loan is used by distressed property owners to avoid foreclosure or bankruptcy.
Getting hard money loans from individuals or private lenders is not as easy as one may think. This is because lenders take their time to assess the financial position of the borrower so as to ensure that they are not exposing themselves to unnecessary risks. If getting this type of loan is the only option that you have, it is important that you take your time to search for the best lender in town.
Lenders normally offer a loan to value ratio ranging from 0.65 to 0.75. This is normally based on the current market price of the property. This means that if you have a house that is valued at 100,000 dollars, you may qualify for a 65,000 to 70,000 dollar loan. While the lender may also consider your credit score and annual income, the value of the property is the main factor of consideration.
The interest rates charged on these loans are normally higher than what banks and other mainstream lenders charge. The loan to value ratios are also normally very low. This is meant to compensate lenders for the high risk they take when they decide to lend to distressed borrowers.
This credit facility is best suited for property owners who have a lot of equity in their property. If the bank intends to initiate foreclosure proceedings unless the outstanding loan is fully settled, this loan may come in very handy. The funds can be used to pay off the outstanding mortgage balance. The house can be sold and the short term loan settled fully. Alternatively, the borrower may decide to repay the new loan using monthly installments.
When you borrow several loans using the same security, the lenders will always want to get the first lien position. However, this is not possible. Others will have to settle for a junior position. Those who take a second or third lien position may ask for additional security.
The repayment period for this type of loan normally ranges from less than a year to around three years. Within this period, the borrower is expected to have finished repaying the loan. A penalty is normally charged by the lender if the borrower fails to honor the terms of the loan contract. The penalties together with the high interest rates can increase the outstanding balance significantly. Therefore, borrowers should always have a sound plan on how they intend to repay the loan before they start looking for a lender.
Some people assume that these loans are the same as bridge loan facilities. Well, they may have the same qualification criteria, terms and conditions, but they are used in different circumstances. A bridge loan is used for bridging purposes only, but a hard money loan is used by distressed property owners to avoid foreclosure or bankruptcy.
Getting hard money loans from individuals or private lenders is not as easy as one may think. This is because lenders take their time to assess the financial position of the borrower so as to ensure that they are not exposing themselves to unnecessary risks. If getting this type of loan is the only option that you have, it is important that you take your time to search for the best lender in town.