Private loans and hard money loans are often confused with one another since many people think any loan done outside of a bank makes it a “private” loan. Bank loans and some types of private loans can be used for a myriad of financial needs (real estate, school, cars, etc) but Hard Money focuses more on property sales, since the assets being judged to determine loan qualifications involve physical value of the property. Hard money lenders do not consider how much a business is making, but how much the property is actually worth (which varies on location, upkeep, maintenance performed, and more). This is useful when flipping houses, buying property to rent out, or property to keep. This is why those working in real estate or business ownership often turn to hard money loans.
Terms per loan when working with hard money are worked out on a per-case basis. This often includes payment amounts, payment schedules, and how long interest-only will be charged. Such specifications can help people get out of tight spots quickly without filing bankruptcy since hard money loans can be obtained in much shorter times than private money or bank loans. Despite the less-stressful terms and obtaining of hard money, the interest rates tend to be significantly higher than other loan methods, but the short terms and the asset evaluation of property; it is often very likely the borrower will be able to pay back the loan easily.
Loans are issued for roughly 65% of the property value. Like other loans, hard money can be refinanced if needed. They can also be turned into a traditional mortgage (worst case scenario ending in short-sale of property or foreclosure) as well. Another possible way to completely pay off these loans is to sell the property (and end up ahead financially, since property value is ensured). Hard money lenders are likely to work with clients having issues paying because the interest is where the money is made for lenders, so foreclosure can be easily avoided with the help of a good hard money lender.
More common bank loans are a headache because of all of the information they need, including credit rating, property value, and large amounts of processing time. This can become a problem if money is needed quickly (say, to close on the sale of a property). Banks are being stingier and stingier with loans nowadays, but hard money lenders are normal people investing their money into helping others, so they will not make you jump through as many hoops as your local credit union will. While the rates, time, and backing of bank loans is lower, a hard money loan might just save you in a time of need.
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