Distressed property owners can get the funds they need to get back on their feet through hard money loans. This type of asset-based financing can be very useful especially for people who have high value properties but poor credit scores. These credit facilities are only offered by private investors and individuals who are willing to make a large profit margin by carrying the risk of lending to individuals who are in financial distress. Keep reading for more information on the subject.
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.
Hard money loans are suitable for individuals who have a lot of equity in their homes. After procuring the loan, the outstanding mortgage balance can be settled fully. The house can then be sold and the hard money loan settled. This will leave the borrower with a huge chunk of cash to buy a new house and remain with some pocket change. While this may seem extreme, it can help to prevent foreclosure and protect your credit rating. Alternatively, the homeowner can continue servicing the new loan after buying back the house from the mortgage lender.
Lenders normally want to have the first lien position on the property in case the borrower defaults. If this is not possible, a lender may accept a junior or second lien position. However, he or she may ask for another asset to supplement the security requirements.
After awarding the loan, the lender will expect the money back within the agreed period. This can be a few months up to three years. Repayment can be done through regular installments or a one-off payment after the property is sold. If the borrower defaults in any way, the lender will add a default fee to the outstanding balance. This together with the high interest rate can increase the loan balance exponentially. Therefore, the repayment terms and conditions must be honored to the letter.
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.
Hard money loans are suitable for individuals who have a lot of equity in their homes. After procuring the loan, the outstanding mortgage balance can be settled fully. The house can then be sold and the hard money loan settled. This will leave the borrower with a huge chunk of cash to buy a new house and remain with some pocket change. While this may seem extreme, it can help to prevent foreclosure and protect your credit rating. Alternatively, the homeowner can continue servicing the new loan after buying back the house from the mortgage lender.
Lenders normally want to have the first lien position on the property in case the borrower defaults. If this is not possible, a lender may accept a junior or second lien position. However, he or she may ask for another asset to supplement the security requirements.
After awarding the loan, the lender will expect the money back within the agreed period. This can be a few months up to three years. Repayment can be done through regular installments or a one-off payment after the property is sold. If the borrower defaults in any way, the lender will add a default fee to the outstanding balance. This together with the high interest rate can increase the loan balance exponentially. Therefore, the repayment terms and conditions must be honored to the letter.
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.
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