Already on ArticleSlash?

Forgot your password? Sign Up

Hard Money Loans - Basics and Important Information

 


Visitors: 159

Hard money loans (HMLs) are a special type of loan backed by real estate collateral. Generally short-term loans with slightly higher interest rates, hard money loans are typically made by private individuals or companies not affiliated with larger banks. Though few people truly understand the hard money lending business from either a lender or a borrower's perspective, the market represents an important opportunity for investors and borrowers alike.

A borrower usually takes out an HML loan using real estate property as collateral. The hard money lender will provide the loan on a “loan-to-value, " or LTV, basis. The “value" of a given property is defined in the business as the amount that a lender could reasonably expect to receive from the rapid liquidation of the real estate, should the borrower default and force a foreclosure. Generally, the HM lender will offer cash at a 65% to 70% LTV ratio - that is, up to 65-70% of the property's current value.

HMLs are often more expensive (that is, they carry a higher interest rate) than many other types of bank loans because lenders often accept more risk of default in making the loan. Despite the higher rate of interest, borrowers may find HMLs attractive for several reasons:

- They do not require the stringent standards imposed by banks

- They are less influenced by a poor credit score or rating

- They have less need for acceptable documentation

- They can be used as “bridge loans" until other financing can be obtained

- They are often faster than traditional loans

Many borrowers choose to take out HMLs because of the lower requirements to qualify. People who face imminent foreclosure or who need money immediately often find that hard money loans are the best - or only - option.

However, because hard money loans have substantially higher default rates than traditional loans (due to less restrictive credit requirements), lenders usually take the first lien on the collateralized property, in addition to attaching higher interest rates. This lien is a legal claim to the real estate which essentially gives the lender first right for compensation from the sale of the property if the borrower should default on the loan.

Regulation of the hard money lending business varies slightly from state to state, but laws are generally non-specific and fairly loose, with a few notable exceptions, where limits on interest rates are set low enough to discourage most hard money lenders from doing business.

For more information on hard money lending for mortgage brokers, visit the website of the Pitbull Mortgage School at http://www.pitbullmortgageschool.com .

Joseph Devine

(458)

Article Source:


 
Rate this Article: 
 
Legal and regulatory issues regarding hard money loans
Rated 4 / 5
based on 5 votes
ArticleSlash

Related Articles:

Private Real Estate Money - The 5 Advantages of Private Money Over Hard Money ..

by: Mike Lautensack (August 17, 2008) 
(Finance/Mortgage Refinance)

Important Information About Online Short Term Loans

by: Charlot Fernandez (March 30, 2013) 
(Finance/Loans)

Investing And Hard Money Loans

by: Jake Marsh (July 12, 2007) 
(Investing)

Hard Money Loans - The Last Resort

by: Julia Vakulenko (September 09, 2008) 
(Finance/Mortgage Refinance)

Commercial Hard Money Loans

by: Joseph Devine (September 29, 2008) 
(Finance/Commercial Loans)

Hard Money Commercial Loans - What to Watch Out For

by: Jeff Rauth (June 23, 2008) 
(Finance/Commercial Loans)

Best Hard Money Bridge Loans Explained

by: Damian Youell (April 09, 2007) 
(Finance)

Hard Money Commercial Loans Revealed!

by: Christopher G Burns (August 12, 2008) 
(Finance/Commercial Loans)

Hard Money Commercial Loans - A Critical Overview

by: Brian Garvin (June 10, 2008) 
(Real Estate/Commercial Property)

Legal and regulatory issues regarding hard money loans

by: Dustin Dylon (January 29, 2013) 
(Finance/Loans)