Explicit Finance
A hard money lender is a lending company that provides a specialized type of loan backed by real estate as collateral. Money provided by a hard money lender is usually only short-term and is based on some percentage (probably 60-70%) of what the lender thinks they could get for the property in a quick sale (of the order of 1-4 months). However, this percentage, as well as other terms and conditions, varies from lender to lender, and the prospective borrower should shop around.
Hard money is more expensive than a more traditional loan because a hard money lender is more likely to have a borrower default than is a company, such as a bank, which has more stringent requirements. Many of these companies do not even require income verification, and the borrower’s credit score usually does not matter.
The company does its best to make sure it gets its money back by only lending a fraction of the current market value of the property, and by making sure it has a first claim and if will be first creditor to be paid if the borrower defaults. Nonetheless, it still carries a considerable risk, as seen in the real estate market crashes of the early 1980s and early 1990s in the US. Consequently, high interest rates are charged. These vary with the state of the real estate market and how hard it is to get investors to put up the money, but are usually in the 15-25% range.
This is expensive, but if the alternative is immediate foreclosure or a quick sale that may well bring in only some 70% of the true value of the property, it can easily be the best, if not the only, solution. Hard times may well mean doing things you wouldn’t normally consider.
If you do decide to go after hard money, you should use a professional real estate attorney to make sure you don’t lose your property because of one late payment or other default – at least, not without a court judgment.
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