Hard Money Lending Is Providing New Opportunities To Poor Credit Credit Seekers
Posted by Stephen Von in Uncategorized, tags: Bankruptcy, foreclosure, housing, investing, lenders, lending, loans, money, mortgage lending, mortgages, real estate, real estate investing, refinancing, UncategorizedAs banking and lending have experienced trouble due to the economic recession we’re suffering from a lot of borrowers have had to switch to alternative forms of funding. Countless borrowers who seek these types of alternative methods of getting funds are those who have been devastated by circumstances associated with the depressed economy; job loss, bad fico scores, high consumer debt, difficult to rely on income - potentially defaults on previous mortgages caused by joblessness or sickness. Many credit seekers are therefore experiencing a hard time getting loans from the established consumer banking community. The rules are usually much too tough to allow such borrowers to meet the criteria for the loans they desire.
One option to low income or low credit prospective borrowers who own property is hard money loans. Hard money lenders are privately owned companies who specialize in lending without becoming a bank. Hard money lenders provide bridge loans, which are short term loans based on a percentage of the total value of the borrowers property or real estate holdings. A wide range of kinds of collateral property can be used to secure the loan such as a business or even a private residence. This property will be transferred to the lender if the borrower defaults on making payments on the loan.
Hard money lenders base the total loan amount offered to a borrower on a variable ratio known as the loan to value ratio. This LTV ratio allows the lender to determine the size of the loan based on a percentage of the total commercial value of the property being used as collateral. Frequently hard money lenders will offer only 65% or less of the total property value. If a borrower requires more money than that they can sometimes put up additional property for collateral.
Because hard money lenders are focused solely on lending money, and not on storing or managing money, they can provide more options for lending and more variations to the types of repayment plans. The regulations applying to regular lending institutions don’t always apply to hard money lending. Regulations vary in different states so they can depend a lot on your particular location if you are in the United States.
Though hard money loans are easier to obtain than traditional bank loans, the borrower does pay a price for that ease. Since the regulations applying to hard money lending are typically less strict that with conventional banking, many borrowers may get a loan where they were denied before. Of course the rate of default will be higher with less stringent application requirements and that higher rate is typical of the hard money lending industry. That means that higher interest rates need to be charged to offset the higher risk. However, if a borrower truly has the ability to pay the loan promptly, the benefits of such financing can far outweigh the higher cost.
A residential hard money loan can aid a real estate investor in purchasing a home at a forclosure sale where time is important.
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