In today’s economy it’s not easy to afford everything we want and need with straight cash. Sometimes it simply isn’t possible to come out of pocket, especially for things like home repairs and renovations. Fortunately there are ways to get past this dilemma. It might not always be comfortable, but borrowing money from lenders has become a good way to fund major projects, so long as the loan is reasonable and handled wisely. Hard money loans are one type of loan that many use to help increase the value of their property.
What is a Hard Money Loan?
The term “hard money loan” sounds a bit odd at first. What could it mean, and how can money be “hard?” The term, which originated in North America where it’s most common, refers to a specific type of asset-based loan. Basically, the borrower receives money from a private hard money lender based on the value of real property (typically a mortgage or commercial property). For instance, if a property is worth $200,000 then the borrower might be able to receive a hard money loan as high as $140,000, which is 70% of the property value. Most hard money lenders won’t lend more than 75% of the real property value.
What are Hard Money Loans Used For?
There are a number of reasons one might seek a hard money loan. The most common reason involves projects or repairs that require a significant amount of money that cannot be paid out of pocket. While this type of loan typically has higher interest rates than other types of loans, it also has a shorter duration. The lender benefits from these higher interest rates and also secures their money by funding in the first lien position. This means that if the property owner cannot repay the debt or must foreclose, the lender will be the first to recoup its investment.
Are Hard Money Loans Hard to Come By?
Part of the appeal of this type of loan for borrowers is that they are generally easier to obtain than other kinds of loans. For instance, the average hard money loan processing turnaround is just 1-2 weeks. Other types of loans might take months to secure and process. That isn’t to say just anyone can get a hard money loan, or that there isn’t some prep work required. Typical forms such as W-2s, tax returns, and credit applications are often necessary to secure a loan. So while the value of a home might be the main factor in receiving one of these loans, a good credit score never hurt either.
There are a number of hard money lending firms out there, and they’re easy to find with a quick online search. Research these places and find out which lender is best for you. You might even find that you develop a good relationship with one of these lenders, which can lead to even better things down the road.