Hard Money Loan
What is a Hard Money Loan?
When a borrower receives a sum of money from a lender and these funds are secured by real property this is known as a hard money loan, usually indicative of tangible real estate to back up any amount of money borrowed. These kinds of loans are normally issued by private investors or companies which specialize in loans which are viewed as high risk. Because of this increased risk these loans typically carry higher interest rates then one would normally see in any conventional loan. The privatized nature of these loans allow the time frame to vary from mere months into the more standard year measurements.
A hard money loan is similar to a bridge loan in that it has similar criteria for lending, as well as possessing similar cost for the borrowers in question. The primary difference between a hard money loan and a bridge loan is a bridge loan normally applies to a property that is in transition or does not qualify for traditional financing. A hard money loan on the other hand money loans commonly refer to a distressed financial situation which normally points too an existing mortgage where bankruptcy and foreclosure may be a problem.
Hard Money Structure
The structure of a hard money loan is set based on a percentage of the quick sale value of the property put as collateral against the money borrowed. This is referred to as the loan to value ratio, or as it is more commonly known as the LTV ratio. Most hard money lenders look for a loan to value ration of around sixty to seventy ( 60%- 70% )percent of the market value of the property borrowed against.
Commercial Hard Money Loans
Commercial hard money lenders operate similarly to traditional hard money lenders but operate with elevated costs as the risk increases as does the value of the property being submitted as collateral for the loan. Most commercial hard money loans tend to be short term and are normally interchangeable with bridge loans as well.