What is a hard money loan and why do we need one? Hard money cans are driven by equity mortgage loans that are funded by private investors. This eliminates the common and often stressful process of qualification, commitments guidelines, delays bank, mortgage companies and with strict rules and regulations.
The most common situations that a person would need a privately financed loan includes Hard Money: The recent bankruptcies, a balloon payment on a mortgage which is due now, notice of default has been delivered, or bad credit ratings. Many times a borrower can not verify income, tax returns or bank statements to qualify for a loan institution. Hard money loans are often used in emergency situations for people in need of quick cash (private loans can be funded in 5-10 days), and a stranger or non-conforming types of property. This may include mixed-use property, several units, departments or land to name a few.
In today’s economy, private lending business has become a big positive for investors seeking alternative ways to invest their money. These investors are not looking to close or take ownership of the borrower. This is a great misconception that often gives loans Hard money a bad name. Private investors simply want a good return on investment so as to protect using the equity in the property. Most if not all lenders just want the payments made on time, compared to the collection of interest.
To comply with the requirements for a loan of money is a tough process much easier to go through a bank or an institution. Bankruptcy, notice of default, mortgages or Bad credit scores are taken into account, but are not used to qualify or disqualify a potential lender. The loans are basa in private equity versus the appraised value of the property. This is called the loan to value (LTV) ratio. This relationship is the main determining factor in qualifying a borrower of a loan from hard money. Once the LTV has been established under Hard Money guidelines established by a particular lender, the loan can be completed in just 5 days.
Hard money lenders have more freedom to write various types of loans to make their institutional counterparts. Interest rates may vary depending on the profile of borrowers and the value of assets used to secure the loan. The institutions have strict rules and only write loans to a particular specification. With a loan of money can be written with a wide range of terms, determined by the position of capital, credit score and the duration that the loan can be written. If you need some money to build a house, but do not want to take a note of 30 years, a hard money lender can often write loans for as short as 12 months. This kind of freedom to adjust the specifications loan is in the best interest of the borrower. The more options a borrower has, increases the chances of getting the best deal possible.
So why are not more people seeking the money market hard for loans? The stigma of private lenders are predatory in nature is the main reason that more people have not heard or participate in this market for home loans. Recent changes in the law of the State of California has helped to regulate what the brokers can make money in hard loans, helping to control the abusive lending practices. The days of gouging borrowers lenders has come to an end through legislation and regulation. Competition in the market and a greater understanding by the average borrower and broker has also helped to legitimize the Hard Money business.
Today, the hard money market is a vital resource for thousands of people seeking to improve their financial situation, but never thought they could because of a bad credit or financial history. Thousands more also take advantage of the Hard money market due to the speed with which loans can be financed. For those people who seek to make rapid improvements to their homes, pay some old debts credit, or invest in buying a house to sell at a later date, the capacity of hard money lenders to adjust loan programs on the basis a borrower needs is what sets the private lending business, apart from the conventional mortgage business.