Hard Money Loans: What You Need to Know

Do you need money to purchase a new property? Are you having trouble getting a loan from a traditional lender? If so, then you may want to consider a hard money loan. Hard money loans are becoming increasingly popular among real estate investors because they offer fast and easy access to capital. In this blog post, we will discuss the basics of hard money loans. We will answer all of your questions so that you can decide if this type of loan is right for you.

What is a hard money loan?

A hard money loan is a type of financing that is based on the value of the property, rather than the borrower’s creditworthiness. Hard money loans are typically short-term loans, and they are often used by investors to purchase properties quickly.

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How do hard money loans work?

Hard money loans are typically issued by private investors or lending companies. The loan is secured by the value of the property, and the borrower pays interest on the loan plus points. Points are fees charged by the lender, and they are typically equal to one percent of the loan amount.

What are the benefits of hard money loans?

There are many benefits of hard money loans, including:

– Hard money loans are fast and easy to obtain.

– Hard money loans can be used to purchase properties quickly.

– The loan is secured by the value of the property, so the borrower’s creditworthiness is not a factor.

What are the drawbacks of hard money loans?

There are some drawbacks of hard money loans, including:

– Hard money loans typically have high interest rates.

– Hard money loans are often short-term loans, so the borrower may have to refinance the loan after a few years.

– The loan is secured by the value of the property, so the borrower may have to sell the property if he or she is unable to repay the loan.

Who should get a hard money loan?

Hard money loans are ideal for borrowers who need fast and easy access to capital. If you are considering a hard money loan, then you should speak with a lender to see if this type of loan is right for you.

FAQs

What are typical terms for hard money loans?

Hard money loans are typically short-term loans, with terms ranging from six months to three years.

What is the interest rate on a hard money loan?

Hard money loans typically have interest rates that are higher than traditional loans. The exact interest rate will depend on the lender and the borrower’s creditworthiness.

What are points?

Points are fees charged by the lender, and they are typically equal to one percent of the loan amount.

Why would you use a hard money lender?

There are many reasons why borrowers use hard money lenders, including:

– The borrower needs fast and easy access to capital.

– The loan is secured by the value of the property, so the borrower’s creditworthiness is not a factor.

– The borrower may have to sell the property if he or she is unable to repay the loan.

What are the risks of hard money loans?

There are some risks associated with hard money loans, including:

– The loan is secured by the value of the property, so the borrower may have to sell the property if he or she is unable to repay the loan.

– Hard money loans typically have high interest rates.

– Hard money loans are often short-term loans, so the borrower may have to refinance the loan after a few years.

Does a hard money loan go on your credit?

No, a hard money loan does not go on your credit. The loan is secured by the value of the property, so the borrower’s creditworthiness is not a factor.

What are the requirements for a hard money loan?

The requirements for a hard money loan will vary from lender to lender. However, most hard money lenders will require the following:

– The borrower must have equity in the property.

– The borrower must have a down payment of at least 20 percent.

– The property must be located in an area that the lender is familiar with.

– The borrower must be able to show that he or she has the ability to repay the loan.

Can you refinance out of a hard money loan?

Yes, you can refinance out of a hard money loan. However, you may have to pay a prepayment penalty to the lender.

What is a prepayment penalty?

A prepayment penalty is a fee charged by the lender if the borrower refinances or pays off the loan early.

Is hard money the same as cash?

No, hard money is not the same as cash. Hard money loans are typically short-term loans, with terms ranging from six months to three years. The loan is secured by the value of the property, so the borrower’s creditworthiness is not a factor.

What is the difference between a hard money loan and a soft money loan?

A hard money loan is a loan that is secured by the value of the property. A soft money loan is a loan that is not secured by the value of the property.

What are some alternatives to hard money loans?

Some alternatives to hard money loans include:

– Traditional loans: Traditional loans are typically long-term loans, with terms ranging from five years to 30 years. The interest rate on a traditional loan is typically lower than the interest rate on a hard money loan.

– Private loans: Private loans are typically short-term loans, with terms ranging from six months to three years. The interest rate on a private loan is typically higher than the interest rate on a hard money loan.

– Home equity loans: Home equity loans are typically long-term loans, with terms ranging from five years to 30 years. The interest rate on a home equity loan is typically lower than the interest rate on a hard money loan.

Closing thoughts

Now that you know the basics of hard money loans, we hope that you have a better understanding of this type of financing. Before you decide to take out a hard money loan, you should speak with a lender to see if this type of loan is right for you.

Further questions

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