Hard Money
Lenders can resolve your urgent need of finance. If you don’t have a great
credit history, and doesn’t qualify for the standard financial loans or fit to
mandatory requirements of a financial institution. You can contact hard money
lenders, who can offer short terms loans, usually known as bridge loans.
The loans
or finances offered by hard money lenders usually based on the value of real
estate property, which will be collateralized for the loan or finance. The
financing comes at higher mark up rates, compared to normal financing through
standard financial institutions.
However,
for those investors or individuals who doesn’t quality or fit for the necessary
financing options, hard money lenders is the only option to get their loans and
finances.
Mandatory Requirements
Mostly, hard
money lenders offer financing facilities on certain terms and condition. They
do have some required standards. Usually, they have requirement about loan to
value percentage, type of real estate property that has been collateralized or
mortgaged. So, the minimum and maximum amount of finance they will lend against
the collateralized or mortgaged real estate property.
Why Hard Money Lenders Charge Higher Interest
Rates
Normally
the traditional and common credit regulations or guidelines are in place for
the protection and safety of standard financial institutions from the risk of
loss or default. These regulations and guidelines included prove of income,
credit score, and employment duration.
On the
other side, hard money lenders bypass, all these requirements or guidelines.
So, they usually charge higher interest rates to their customers. This
certainly protects them from financial losses in case of their customers might
defaults.
History
clearly suggesting that the defaults are very much common among the borrowers
of short-term or bridge loans, as compared to standard loans customers from
standard financial institutions, such as banks and credit unions.
Different Procedures for Hard Money Lending
Besides of
the fact that hard money lending consists of higher interest rate. So, it is
better for those who can’t get any loan facility due to poor credit history,
recent job loss, or not qualifying for necessary documentation.
Whenever, a
customer seeking for this type of borrowing, it is very common to offer the
real state property being treated as collateral. Hard money lending also involved
different procedures for other forms of collateral as well.
The
procedure included hard money lenders to offer smaller finance amount the value
ration of real estate property. So, the amount a customer can finance will be
much smaller, as compared to the actual value of the real estate property.
In certain
cases, customers have to collateralize another real estate property to increase
the loan amount. This is called as cross collateralization in financial terms.
Charges and Law Regulations
Usually,
hard money lenders charge an application fee, and prepayment penalty. These
high amounts can cover the higher risks as normally bridge loans have higher
default rates than normal or standard financing through financial institutions.
As hard
money lenders bypass or overlook many business regulations. There are certain
states like New Jersey, Tennessee, have some regulatory laws and also prohibit
offering of bridge loans entirely. However, the regulatory laws can differ from
state to state.
Summary
Hard money Lenders can resolve the
financing problems of those individuals and investors who doesn’t seem to have
good credit history, or can’t fit or qualifies for the standard financing
options offered by standard financial institutions, such as banks, etc. hard
money lenders charge you for higher mark-up rates, as compared to conventional
financing. They finance against the ratio of certain percentage for the real
estate property that collateralized with them for the loan amount.
Usually, the loans they finance are known as Bridge loan and there are certain
regulatory laws for these types of loans, which differs from state to state.
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