A hard money loan is a loan taken with the property value as a collateral. Creditworthiness is a requisite. Most loans of this kind are short-term and offered by private investors.
Although they are closely similar to subprime loans, these loans’ LTV ratio is rather lower. Interest rates are also much higher compared to the conventional subprime counterparts. And since this loan is considered a risky loan, banks do not offer it.
This type of loan is not formally regulated by the law which is also why it is considered unsecure. Although a hard money loan is a risky take, some borrowers still take advantage of it. They can come handy when one is looking for short-term financing or someone who has a large equity property equity but has bad credit.
There are still effective ways to cushion yourself from potential danger when taking this loan.
Are you sure about getting a Hard Money Loan?
Why are you getting one? Aren’t you just desperate to have a loan after being rejected by a conventional lender? Rushing to have a loan without checking for other alternatives can spell out disaster. Hard money loans are considered “last-resort” loans. Learn about its pros and cons. If the advantages gravely outweigh the downsides, then by all means, go ahead.
Look for a good lender
Having a reputable loan provider will give you a sound heart and mind. Although it can be expected that interest rates are really high, finding a hard money lender who is willing to help with your financial situation is still possible.
Shop for lenders, know them more. This way you avoid ending up with loan sharks. A possible flag would be the ones who have lawsuits especially on bad loans. This can pretty much tell what kind of lenders you are dealing with. You may also want to check on their past projects, and how their borrowers have sailed through the loan until they have fully paid the loan.
Consider local lenders
Since your property is your collateral, these kind of lenders will most likely want to see the property first thing. Local lenders know the current lending situation in your county better, although some national lenders may have someone operating locally for them. Meet and talk to your lenders, ask them questions and find out how they work.
Protect yourself legally
Even if hard money lenders are unregulated by state or federal laws, you can always protect yourself legally. Before you affix signature on the settlement papers, make sure you read and understand every single page. Have a lawyer review them, ask him to explain things that are vague. A lawyer can easily spot loopholes that are preposterous.
Make everything’s set in black and white
And since you are already reviewing the closing agreements, make sure the hard money lender reflects all fees and charges in ink. Make sure that there are no additional fees hidden from you. Do not forget this step, this can spell out a huge difference when undone.
Hard money loans aren’t for everyone, but has a good place for some borrowers. Never forget to protect yourself from loan sharks as in this pool, there can be a lot. Shop around, look for a lender who can make this a source of financial stability than a liability.
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