For people whose credit ratings are below average but who are in dire need of immediate cash to finance their real estate needs can approach alternative lenders for their money problems. However, for sizable loan amount, BORROWING from payday lenders and other small but private financing group may not be viable. In the CREDIT world today, there is such a thing called hard money loan. What is hard money loan? According to the website INVESTOPEDIA, “hard money loan is a form of a short term bridge loan where the amount concerned is secured by the value of the collateral or property and not by credit worthiness of the borrower”. Since the collateral is being used to secure the loan the borrower can only get an amount way lower than the value of the property being used as collateral for the loan. This condition is referred to as “lower loan-to-value ratios or LTV. This is quite the opposite when you secure a loan with traditional lenders. Hard Money loans levies higher interest than those that you can get from traditional loans. Also hard money lenders are usually facilitated by private individuals or groups that see the value in investing in this kind of lending system.
Advantages & disadvantages of Hard Money loans
Accessibility is one of the main advantages of hard money loan considering that their requirement is not as strict as that of the traditional lenders. Loans are approved much faster with very little documentation to present. Hard money lenders accept any valuable asset or property to cover the loan and allow the borrower to get as much as 75% of the secured property value. They are more flexible in their loan offer as compared to conventional lenders such as the bank. On the other hand the high interest rate and processing fees for the loan can be considered as its main disadvantage. Also, unlike banks and other conventional lenders the loan-to-value or LTV offered by hard money lenders are much lower thereby increasing the risk that in the event of a default, the borrower tends to lose a lot more that what he has received.