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Everything You Need to Know About Hard Money Loans

Private loan money is also known as hard money. These loans come from hard money lenders that specialize in structuring loans. You get the term hard money residential loans since hard money loans often begin with a first mortgage on a residence. There are many factors that come into play to identify a hard money loan. What follows are a few facts worth noting about this type of loan for you to understand it better before applying for one.

When it comes to hard money loans, you have to understand that they are generally first mortgages. For this type of loan, what matters most is the amount of property equity. The credit score of the borrower is not as important. With the first will in effect, you can prevent the potential loss of the whole property. Take, for instance, if another loan comes ahead of the hard money loan. Hard money lenders don’t put as much importance to the credit score of the borrower because they only consider the property as the security. With the lender basing how much money they lend to the borrower on the value of the property, they are paid significantly for taking the chance.

If you are going to take a hard money loan, the lender will be charging very high points and interest rates. For properties that are deemed secure enough, the high points will added into the actual loan. In terms of payment, paying this loan does not involve the usual principle plus interest rate. You are akin to only paying the interest rate with some additional charges at the end of the loan payment period. In short, with points being interest in themselves, you are paying interest on your interest. Points are often calculated along with your mortgage. So, every payment that you make as a borrower is just like paying your interest only.

One of the things that every hard money lender must do is to ensure that a comprehensive appraisal of your property is done. Doing so gives them the guarantee that they need for your loan. These lenders will be looking into the loan to value ratio of the property that you will be presenting to them. This ratio is simply the percentage amount that your loan will be if you put it against the present value of your property. Take, for example, your property is appraised at $100,000 on a 70/30 LTV. What this means is that the hard money lender will be lending you $70,000 against the value of your property.

These days, you can choose from a range of hard money lenders. Only choose reliable lenders whom you can trust and have the necessary experience in the field.

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