Sometimes you need extra cash to finance your upcoming project or to push your business through some tough economic times. At such a time, taking a money loan could be one of the best options. But with numerous loan options in the current market, it’s frustrating to get the right one to suit your needs. But how different are these loans from the traditional loan options? We take you through some important things you need to know about hard money loans below.
What’s a Hard Money Loan?
In hard money loans, the funds are secured by real property and not your credit score as a borrower. As such, these loans are mainly applicable in real estate transactions. Most lenders offer 1-3 years for hard money loans and they’re the quickest way to get money for your project.
Remember, with hard money loans, it’s your house/property that stands in as security, making it easy for you to get approval for hard cash, especially if your credit history isn’t solid.
How Does a Hard Money Loan Work?
Although money loan lenders such as californiahardmoneydirect.net might not consider your creditworthiness to approve your hard money loan, they are numerous factors that they consider. For example, your home equity will come into play, the loan-to-value, among other factors. However, once your money loan is approved you can receive your cash very quickly.
But then, you still have to consider the fast turnaround period, and of course the interest rate.
There is also the origination fee. So, generally, money loans are a bit more expensive than traditional loans because lenders have to take a higher risk by lending to you. Take it as a win-win situation for both parties (You get money when no one can lend to you, and the lenders take a risk with your unstable credit score.)
The Setting of Hard Money Rates
Whenever you apply for a loan, the first thing the lenders do is review your financial background to help them decide whether you’re reliable or not. But since with money loans, the lenders are automatically taking a higher risk by lending to you, even with the chance of defaulting. This explains the higher interest rates that are usually 2-10% higher than mortgages even after having your home listed as collateral.
Money Loans Risks
Even with quick approval and funding, money loans pose a few risks that you should be aware of to help in your decision making.
First, as mentioned above, they have higher interest rates.
Secondly, there are also some extra upfront costs and a greater percentage of down payment that could start at 30% or more.