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Always Though Hard Money Lenders Offer You Bad Loans Deals
My office is located in the ballpark district in Denver, always a great place to hang-out. Just before leaving for work today, my friend called and asked me for a ride till there. He said he’s meeting someone to secure a hard money loan for a property. The term ‘Hard money lender’ immediately paints a negative image of the financer in my mind. While traveling to work, my friend explained that this is a false perception that a few people have hard money lenders due to a few bad instances. In fact, the hard money lending business is flourishing in Denver specially due to a high demand for financial support required for fast-growing infrastructure and real estate. So, depending on the project, a hard money lender in Denver might benefit your business or real-estate ownership.
Who is a hard money lender?
A hard money lender is a private financer who lends you money on the basis of a property that you use as collateral. It’s true that in the past some exploitative lenders have offered risky loans to borrowers intending to foreclose on the properties that were kept as collateral. But the market isn’t the same now.
What is a hard money loan?
Hard money loan is simply a short term loan secured on the basis of real estate. Hard money loans are funded by private investors or a group of investors as opposed to financial organizations like banks or credit unions.
Term and interest rate
Hard money loans are intended to be short term loans usually with a term of around 12 months. However, they can be extended for longer periods of 24 to 60 months. In this type of loan, the borrower pays monthly payments equivalent to the monthly interest on the loaned amount and some amount of the principal and pays a balloon payment at the end of the term. Interest rates for hard money loans are usually higher than what is offered by conventional banking corporations. This is because the amount of risk taken based on the loan is higher. Interest rates of hard money loans may differ from lender to lender and may vary from region to region. For example, interest rates on hard money loans are less in the state of California then other states.
As you know, the amount of money that can be borrowed under this loan is based on the value of the property kept as collateral. The property that the borrower has kept as collateral in a hard money loan may be already owned by the borrower or it may be a property that the borrower is about to acquire. So it’s quite evident that the hard money lender’s interest is in the property’s value rather than the borrowers' credit.
Why hard money loans?
You don’t need to necessarily take hard money loans if you have a good credit and income history and you are not under any time stipulation for the purchase of the property. However hard money loans are a great option to finance properties in several situations. For example, borrowers take up hard money loans for buying properties if they are unable to secure a loan using the conventional or direct financing offer through banking corporations. Some hard money loans are taken up when the time available to secure a property is less than the time required to secure the loan for it (from a banking corporation). Many borrowers also intend to take hard money loans for a property that they i want to quickly purchase, renovate, and sell a property. This is also termed as a fix and flip strategy. And lastly, people with a bad credit or income history also deviate towards hard money loans for instant finances.
Properties for hard money loans
A person can get a hard money loan on almost any property like residential projects, commercial projects, land, and industrial property. However, most hard money lenders only specialize and deal in specific types of properties. This is because they can only offer you the loan for the kind of property they have experience dealing in. So it is sensible to inform them upfront what kind of loan they might be interested in. It has also been observed that hard money lenders who don’t want to go through the extensive paperwork of a property, due to do it being occupied by the owner, might refuse to offer a loan for it.
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