Explicit Finance
Hard money loans are asset-based loans secured by the value of a piece of real estate. They typically carry higher interest rates than traditional property loans and are very rarely issued by traditional banks. However, if someone is in arrears on a mortgage and/or facing bankruptcy and foreclosure and loss of their home, they can be a real godsend.
Hard money loans are usually made by private investors, normally through a company specializing in such transactions. Most of the time, these investors are situated in the local area.
Usually, the borrower’s credit score does not matter. Lenders will almost certainly get their money back because these loans are secured by the property, are usually only some 60-70% of the quick sale (i.e., within 1-4 months) value of the property, and the lender has a first mortgage and will be the first creditor to get paid if the borrower defaults. However, lenders still carry considerable risk, as seen in the real estate market crashes of the early 1980s and early 1990s in the US, and 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 typically in the 15-25% range.
Anyone seeking hard money should use a professional real estate attorney to make sure they are not going to lose their property because of one late payment or other default – at least, not without a court judgment.
Hard money loans are expensive, but if the alternative is immediate foreclosure or a quick sale that may well only bring in some 70% of the true value of the property, they can easily be the best, if not the only, solution. Hard times may well mean doing things you normally wouldn’t consider.
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