Many years ago, some shady characters blemished the hard money lending business. They charged huge amounts in interest in hopes that people could not pay them back. They would then foreclose on the property and take ownership. Today that is no longer the situation.
Today the process of getting hard money for real estate is not like the traditional underwriting process. Lenders today can allow for repayment adjustments and will negotiate repayment schedules. This allows the borrower more chances to pay the loan back during the repayment schedule. He can pay it back without penalties or pay it off completely at an earlier date.
Hard Money Loan Requirements
Today, real estate is the security for hard money loans. Private investors lend the money for short term loans. They may be a group of investors or just one investor lending the money. This is different from getting a loan from a bank or credit union. The terms of the loan are usually for 12 months but can be extended up to as much as 2 to 5 years. The borrower will pay interest payments on the loan each month. Some loans require that a small amount of principal also gets paid each month, but many do not require the principal payment amount. The amount of the loan will depend on the property value that the borrower is putting up for collateral. It may be a piece of real estate that he already owns, or it may be a parcel that he wishes to develop and resell.
The lender is more interested in what the value of the property being bought is worth. Credit score of the borrower is not the main factor in borrowing hard money. It is still counted as being either good or bad for the borrower. When the borrower has been turned down by a bank, because of a foreclosure or a short sale, he usually can still apply for a hard loan. If there is enough equity in the property that he now owns or is using for collateral, hard money lenders can say yes when banks usually say no. The borrowers plan for the property is considered by the lender. The borrower must show a detailed plan on how he plans to develop the real estate and how the loan will be paid back. In most cases it is improving the property and selling it for a profit.
Real Estate Used for Hard Loans
Buying your home to live in, when you have good credit and no foreclosures or short sales in your credit report, should be done through a conventional lender. Hard money is what you use when conventional financing has turned you down and you need a short-term loan. The ideal situation for hard money funding is when you want to fix up a piece of real estate and resell it in a short time. Land loans and construction loans are also available. If the buyer has credit issues that stop him from going to a bank, or if an investor needs to get a loan quickly, hard money funding is there to help.