A residential hard money loan is a kind of loan in which a borrower gets funds based on, the value of a specific commercial or residential real estate. The term hard money refers to the difficulties in acquiring a loan. Hard money loans offer high interest rates and lower loan-to-value ratios, as there is no government institution that backs the lender. The loans are given against collateral — usually real estate.
Residential hard money loans are loans given by private lenders on the basis of the value of the asset or property as opposed to the traditional banking criteria of credit scores, tax returns, and income statements of the borrower. Residential hard-money loans are temporary bridge loans that are provided for acquisitions, refinancing, foreclosures and people who go bankrupt. The interest rates are high but it is cheaper than taking on a financial partner or becoming bankrupt.
In general, hard money loans offer interest rates and points that are, 50-100% higher than traditional bank loans. This has led to the impression that, they are tough to repay. However, hard money loans are considered to be beneficial for people looking out for sources that help them get loans, to renovate residential property before selling or renting them.
The hard-money lenders usually consider income-producing properties such as apartments, retail or shopping centers, industrial, office buildings, hotels, motels, medical institutions, and restaurants. They also provide loans for non-income producing activities such as land acquisition, development and construction, foreclosures and bankruptcies.
Most private investors look for a safe and secure investment with a return, better than what they will receive from the bank. As residential hard money loans are secured, by a property with usually 30% – 50% equity, the investor is well protected and receives the benefit of the higher interest rate return.
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