Hard Money Loans - In general terms a hard money loan is one in which the lender looks past the credit history and high risk factors of the borrower and focuses on the security of the collateral. In the case of a hard money home loan the collateral would be the home and the real estate that it occupies.Along with the high rates that come with Hard Money Loans, there is typically points charges up front for the loan.
Hard money loans are best suited to the borrower who has very low credit scores (500 - 400 fico mid). There are two types of hard money loans 1) No Appraisal needed - Hard Money - These are lenders who do not require an appraisal to complete the loan, however, the industry standard is 65% LTV. 2) Appraisal Needed - Hard Money - These are lenders who do require an appraisal, however they will typically lend up to 70% LTV.
Many hard money lenders will lend 65-70% of After Repair Value or ARV. This allows you to receive funds to rehab a home in some cases.
Hard money lenders can be the best way to go in some circumstances. One instance would be if you are about to be foreclosed upon and you have enough equity in the home you can quickly get the money needed to pay your outstanding debts. However, the best circumstance would be for borrowers who do not want to go through all of the paperwork that is associated with a regular mortgage. One example would be a contractor who wants to build a spec home or an investor who would like to flip a home.
To justify the high risks associated with Hard Money Loans, lenders charge exceptionally high interest rates. For this reason, Hard Money Loans are not for the average homeowners. They are often deemed the last resort after all other avenues are exhausted.
