What constitutes a Hard Money Loan?
A hard money loan is essentially a brief-duration loan secured by real estate assets.
Private investors or investor funds provide the funding for these loans,
in contrast to traditional lenders like banks or credit unions. Generally,
the loan spans about 12 months, but this time frame can stretch to 2-5 years.
These loans involve monthly payments covering only interest, or both interest
and a portion of the principal, with a lump sum payment due at the
conclusion of the loan term.
The lending capacity of hard money lenders hinges largely on the appraised value
of the property under consideration. This property could either
be one that the borrower already possesses and intends to use as collateral,
or it could be the property the borrower aims to acquire.
Hard money lenders prioritize the property's value over the borrower's credit history
(although the borrower's creditworthiness still holds some significance).
Even those borrowers who are unable to secure traditional financing due to recent
experiences like foreclosure or a short sale can secure a hard money loan,
provided they possess substantial equity in the property being leveraged as collateral.
In situations where traditional banks would decline, hard money lenders
can still give the green light.