How Hard Money Loans May Help you

By: Nate Hananger

The expectations of lenders can be excruciating for borrowers. The down payment required for an acceptable LTV combined with the minimum credit score are enough to lead potential loans to what looks like a dead end. However, in some cases hard money loans are the perfect remedy.

Often times hard money lenders are confused with venture capitalists mostly because private investors are involved. Banks and lending companies arrange the loans with help from the investors who are seeking a reasonable return.

Clients also tend to request specifics that are determined by a review of their loan request and financial status. For example, lenders can typically tell someone what interest rates range from, but one must apply in order to receive a quote. Since each person may qualify for different terms, rates and amounts it is only rational to review the pros and cons so you may determine whether or not it's worth it to pursue a hard money loan any further.

One benefit for borrowers who utilize hard money loans is that the lenders do not focus so much on their credit scores as they do on the value of the property used as collateral. Most lenders have a limit on the LTV of the property used for collateral. This can range from 50 percent to 85 percent and is completely a case-by-case basis. If there is enough equity, the value of the property will need to be proven through an appraisal. Some lenders accept appraisals that are new enough, while others demand that new ones be completed.

Another benefit of hard money loans is how quickly they close. Many borrowers take full advantage of this even if their credit is excellent, simply because they prefer a hassle-free transaction that doesn't drag on for a month.

Individuals in pre-foreclosure or bankruptcy are also able to obtain hard money loans so long as the lender is convinced that the borrower has sincere and verifiable intentions to dig themselves out of the financial hole they're in. More times than not, this is one of the exceptions where a borrower's income can be the determining factor for receiving the loan. If they are able to demonstrate that the debt can be repaid, a hard money loan can very well become their life raft.

With interest rates that reach 18 percent (or higher) and fees that climb to 6 points plus, there are obvious disadvantages that may scare borrowers off. This is not always the case, which is where due diligence on your part comes into play. One can quickly determine whether or not the interest rate and fees being offered are reasonable in relation to their situation by reviewing multiple offers from different lenders and asking questions. Similarities in the offers signal that you're probably pretty close to the best amount you can get.

In the end, obtaining financing really comes down to: Convenience & Reliability vs. Amount & Terms. How quickly you want the loan and how dependable you are to repay the lender determine what you will get. And on a final note, a few minutes spent on the phone with anyone specializing in hard money loans will help you see past any presumptions so you can focus on what you qualify for and how it will help your goals.

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