Hard Money Loans - The Answer to Your Problems?
If you're one of the many, stuck between a financial rock and a hard place (or a foreclosure and a bankruptcy, as the case may be), it may be advantageous for you to look into taking out a hard money loan. Hard money loans are utilized by many people facing foreclosure or similar financial disaster, as the criteria for lending is more relaxed than a conventional loan. While your credit history is still taken into consideration by the lender, it's typically not judged as harshly because the loan is given based on the value of real estate property you already own.
Due to the slightly higher risk to the lender when dealing with hard money loans, they are not provided by banks but rather by private lenders, and as such, the interest rates of these loans aren't based on bank rates. Typically the interest rate on a hard money loan will range from 15% - 25% (a little less for bridge loans, which are similar, but not necessarily used in times of financial hardship), which means that you probably don't want to look to hard money loans as sources of long-term financing. In fact, the term is often fairly short. Think carefully about whether or not you'll be able to handle the loan, as the rates may increase to the legal state limits upon default, which can be as high as 25% - 29%.
Typically the value of a hard money loan is about 65% - 70% of the value of the property. This is known as the LTV (Loan-To-Value). The average LTV used to be higher than it is now, however due to rampant lender overestimation of property values in the '80s and '90s, interest rates were raised, and LTVs lowered. Now, hard money lenders typically want to be in the "first lien" position (meaning their lien takes priority over all others) on a given property, so if the value of the property isn't enough to cover the existing mortgage, the loan will need to be cross-collateralized with another property. These cases are often referred to as "blanket mortgages."
It's important to review your financial situation thoroughly when considering taking out a hard money loan, and it might benefit you to talk to a certified mortgage planner before you make the choice to do so. In the right circumstances however, a hard money loan may be what it takes to tide you over, and keep your business from going under.
Rate1st is America's largest online lending network, and provides a simple, easy, efficient way to shop for a loan. For more information on hard money loans please visit www.Rate1st.com.View all articles by Nick Kent
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