What are Hard Money Loans?
Making sense of your financing options is the best way to make the right choice for your lending needs. opens in a new windowAnchor Loans experts know the local lending marketplace, and within this latest post we discuss opens in a new windowhard money loans and their unique benefits.
What is a Hard Money Loan?
Hard money loans are “asset-based” loans secured by real property. The loan amount is based on the value of the collateral, so credit scores and income levels are not a leading consideration for approval. Hard money loans are typically short-term—usually around 1 to 5 years—and are designed to help real estate investors repair and upgrade their properties to optimize profit.
What are the Benefits of Hard Money Loans?
Hard money loans are typically approved and funded quickly, do not exclude distressed properties or credit-challenged borrowers, and are much more flexible than conventional bank financing. Repayment schedules, construction cost disbursements and other elements of the loan can be optimized for each client.
What are the Main Drawbacks of Hard Money Loans?
If not managed correctly, hard money loans can be costly. Typically, borrowers will make monthly interest-only payments with a balloon repayment of the principal at the term’s end. It is critical to carefully consider the optimum loan period for your project. Borrowers must accurately assess their property’s after-repair-value and thoroughly research local market conditions to be confident they can pay the loan back on time, avoiding costs or possible default.
The interest rates on a hard money loan are higher than a conventional bank loan. Most borrowers will pay between 8% and 14% for a hard money loan, although it could be higher or lower depending on the borrower’s experience, the value of the property and other considerations. The loan-to-value ratio for hard money loans also tends to be more conservative than for traditional loans. Lenders want to be sure they’ll recoup their investment, so the loan-to-value ratio may only be as high as 70% of the value of the property.
If you think a hard money loan could be a good fit for you, it’s important to work with a qualified lender with available capital and an excellent track record. To discover more about the options available, call Anchor today.