Hard money Loan Lenders provides asset-based financing, which uses the borrower's property as collateral. Instead of looking at the borrower's credit history, income, and other financial indicators, they look at the property's value and whether it's enough to recoup any losses in case the borrower is unable to repay.
This allows them to make loans to those with bad or insufficient credit histories, or to aspiring businesses with unusual financing needs.
As hard money loans are inherently riskier, they often come with high interest rates and strict terms.
A Private Hard Money Lenders can charge between 12% and 18% in interest, up to three times as much as an already costly sub-prime mortgage, and impose stiff fines when the borrower misses a payment or pays past the deadline. And often, since hard money loan lenders work privately, they cannot offer as much consumer protection as most banks.
So why do foreclosure investors still opt for hard money loans?
For most of them, the interest and terms are a small price to pay for the opportunity to make big profits. The best distressed property deals are quick to disappear from the market, so waiting for bank loans to push through isn't very practical. Since hard money lenders don't go through the usual credit checks, they are able to approve loans in a matter of weeks, or even days.
Banks, credit unions, and other commercial services rarely offer hard money loans, so lenders are usually found through mortgage brokers or private investment circles.
Many private hard money lenders work with small business brokers who specialize in mediating deals between lenders and businesses. They also tend to specialize in certain industries, such as construction loans, rehabilitation loans, and personal loans to rebuild one's credit history.
Borrowers interested in hard money loans can learn more about their options at Hard Money Tree, a website offering information and directory services for hard money loans.
*HardMoneyTree.com* brings together some of the most established hard money lenders in the market and provides in-depth resources to help borrowers understand their choices. Besides a broad network of lenders, it also offers news, updates, and tips and tricks to help borrowers get the best deals.