A hard money loan is a specific type of asset-based loan financing through which the borrower receives the funds secured by the real property. Hard money loans are usually issued by investors or private companies. Interest rates are usually higher than conventional commercial or residential property loans, ranging from 7.7%, due to higher risks and shorter loan durations.
Video Hard money loan
Overview
Most hard money loans are used for projects that last from several months to several years. Hard money is similar to a bridge loan, which usually has similar criteria for borrowing as well as fees to the borrower. The main difference is that bridge loans often refer to commercial property or investment properties that may be in transition and are not yet eligible for traditional financing, whereas money often refers to not only asset-based loans with high interest rates, but possibly depressed financial situations, such as arrears on existing mortgages, or where bankruptcy and foreclosure proceedings are taking place.
The amount of loan that the hard money lender can lend is determined by the ratio of the loan amount divided by the value of the property. This is known as loan to value (LTV). Many hard money lenders will lend up to 65-75% of the current property value.
"Hard money" is a term used almost exclusively in the United States and Canada, where these types of loans are most common. In commercial real estate, hard money is developed as an alternative "last resort" for property owners who seek capital for the value of their holdings. The industry began in the late 1950s when the credit industry in the US underwent a drastic change.
From the outset, hard currency has always been officially unregulated by state or federal law, although some interest rate restrictions (law of usury) by state governments limit the hard-money level so that operations in some states, including Tennessee and Arkansas are virtually can not be maintained for lending companies.
The hard money mortgage lending market has grown tremendously since the 2009 mortgage crisis with the passage of the Dodd-Frank Act. The reason for this expansion is mainly due to the strict regulations imposed on banks and lenders in the process of mortgage qualification. The Dodd-Frank and Truth in Lending Act set Federal guidelines that require mortgage lenders, lenders, and mortgage brokers to evaluate a borrower's ability to repay a loan at a primary residence or face large fines for non-compliance. Therefore, hard money lenders simply lend to business or commercial lending purposes to avoid the risk of falling loans in the Dodd-Frank, TILA, and HOEPA guidelines.
Since the main basis for making money loans is the value of liquidation of guarantees that support the notes, the money lender will always want to determine LTV (loan to value) before making any extension of the financing. The hard money lender determines the value of the property through a BPO (broker price opinion) or independent judgment made by a licensed appraiser in the country where the property is located.
Interest rates on hard money loans are usually higher than the rates charged for traditional business loans. Interest rates can range from 10% to 18%. Nonetheless, these loan options are popular for their quick approval, higher flexibility, less tedious documentation procedures and, sometimes, the only option to secure funds.
Maps Hard money loan
See also
- Asset-based lending - a type of commercial loan based on real estate, indicates the loan will be based on the percentage of property valuation value, as the main criterion
- Personal money - refers to lending money to companies or individuals by private individuals or organizations
- A bridge loan - a type of commercial loan based on real estate
- Unsecured loans - loans that fail to meet bank criteria for funding
References
- "Moneylender: Investment Guide". hardmoneylenders.finance. Obtained January 18, 2018.
Source of the article : Wikipedia
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