Hard Money Loan

What is Hard Money Loan?

Commonly known as the short-term bridge loans, Hard Money loans refer to the debt that needs a property or home as a mortgage. They are often considered as last-resort loans. Mostly, the lender in such type of transaction isn’t a financial institution or Bank. It is rather a company or private moneylender. This type of loan is commonly used in Real Estate transactions. Usually, people who need to obtain the loan quickly apply for hard money loans.

It is easier to get your loan approved when you use a property as security. While this type of loan is highly recommended for real estate transactions, hard money is an expensive way to raise funds for a short period. Since the transaction happens between a private money lender or a company and borrower, the terms of the loans can be negotiated. As the name implies, the property is used as the security for the loan.

Understanding the Hard Money Loan

There is a reason why we said that a hard money loan is easier to obtain than other types of loans. Basically, the lender takes your property’s value into consideration before accepting the loan request. They do not request the borrower to show their credit reports or mention their Credit Score in the application. The lender has nothing to do with the borrower’s creditworthiness. After all, the borrower is using their property as Collateral. Even if the borrowers end up in Default, the lender will have the right over the property used to secure the loan. They can sell this property to compensate for the loss.

As tempting as it sounds, a hard money loan is a risky agreement for the lender and borrower. That’s the reason why banks, credit unions, and financial institutions do not allow such types of risky transactions. Hard money loan is especially recommended for homeowners who plan on reselling or remodeling their property. As mentioned before, the hard money loan can be quite costly owing to the fact that the borrower will want to repay this loan amount as soon as possible (probably, within one year). The term for a hard money loan is 1-3 years. However, private money lenders can allow the borrower to take more than the standard period to repay the due amount.

Benefits and Drawbacks of Hard Money Loan

Since the lender is willing to take a higher risk, they charge a high interest on the loan. So, a hard money loan is an expensive funding option as compared to the standard bank loans. The perks, on the other hand, includes flexibility in the repayment period, quick and hassle-free approval of the loan, and easy access to the Capital.

Hard money loan is a suitable option and often a last-resort for low-credit score borrowers. Banks don’t accept the loan request of the borrowers with poor credit history. So, your only option is to approach a private moneylender and use your property as collateral. Besides, you don’t have to wait for days to get your loan application request approved.