Backing High Risk Real Estate With Unconventional Loans
Posted by Stephen Von in Uncategorized, tags: Bankruptcy, foreclosure, housing, investing, lenders, lending, loans, money, mortgage lending, mortgages, real estate, refinancing, UncategorizedHard money lenders are more interested in the value of collateral property for loans than they are in the credit score of the borrower. In fact, hard money lenders really don’t pay attention to the credit score of borrowers. And the loans they offer do not usually conform to the standards of traditional lenders.
Hard money lenders posses lien rights on the collateral property. The implication is that in the event of default, the collateral for the loan would be transferred to the lender. Because the original loan is usually 30 - 40 percent less than the quick sell price, the person offering the loan is in better shape to recover his lost money in case the borrower defaults. And this gives the lender the chance to come out ahead if the property remains at the same market value or appreciates in value. However, should the market value drop, the lender could lose a lot of money.
The loans that hard money lenders grant generally have a higher rate of interest. This is because of the higher risk associated with hard money loans. Often the borrower is in financial distress, may have a bad credit score, or has gone through bankruptcy. So conventional lenders don’t usually like engaging in this type of high risk lending. That means that hard money lenders are almost always local private lenders who are willing to incur the extra risk for the reward of higher interest on the loan.
Although hard money lending has been around for many years, many people think of it as a new idea. The credit industry had changed a lot in the 20th century. Before it was always very difficult to obtain loans for distressed commercial and other properties. Because of this difficulty, a new solution arose from the market place. Hard money lending was born.
Hard money lenders are of course engaging in perfectly legal and legitimate business. The type of loans they provide are just not the first choice for many borrowers, in part because of the higher interest rates. But at times a large quantity of capital is needed for a risky venture that conventional lenders won’t provide. This means that the only choice for some one seeking such a loan is one provided by hard money lenders.
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