What is Hard Money Loan

 

Have you heard about hard money loan ?  From Wikipedia, hard money loan define as a specific type of asset-based loan financing through which a borrower receives funds secured by real property. Hard money loans are typically issued by private investors or companies and their interest are typically higher than conventional commercial or residential property loans because of the higher risk and shorter duration of the loan.

Hard money loans have lower loan-to-value(LTV) ratios than traditional lonas because the property will be used as the only protection against default by the borrowers.

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Who Needs Hard Money Loan

Developers and house flippers are commonly use hard money loan because mostly, they could often borrow up to 100% of house purchase.

 

Advantage of Hard Money Loan

Why use hard money loan? There are several reasons such as :-

  • Convenience
    • Hard money is much convenience as apply for mortgage is time-consuming. Sometimes it take months to close on loan. With hard money loan, it’s possible to get funding in a matter of weeks.
  • Flexible Terms
    • As hard money loans offered by private lenders, it’s possible for investors to have more room for negotiation of the loan term.
  • Collateral
    • Hard money loan use the property as collateral for the loan. Some lenders, may allow to secure the loan using personal assets.

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Disadvantage of hard money loan

  • Cost
    • Hard money loans are convenient, but investors pay a price for borrowing this way. The rate can be up to 10 percentage points higher than for a conventional loan. Origination fees, loan-servicing fees and closing costs are also likely to cost investors more.
  • Shorter repayment period
    • The purpose of a hard money loan is to allow an investor to get a property ready to go on the market as quickly as possible. As a result, these loans feature much shorter repayment terms than traditional mortgage loans. When choosing a hard money lender, it’s important to have a clear idea of how soon the property will become profitable to ensure that you’ll be able to repay the loan in a timely manner.

The important thing is you know the base of lenders. Don’t just choose lender without knowing them. Avoid loan shark as you will risk your life.
Reference : Wikipedia

Investopedia

 

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