What is the Definition of a Hard Money Loan?
A hard money loan is a type of asset based loan financing in which the borrower of said funds has them secured by real property. These kinds of loans are most often issued to private investors and companies as they have more collateral to place against the loan they are issuing. These types of loans are also characterized by higher interest rates as the duration of the loan is shorter.
The qualifications for a hard money loan are similar to any other conventional loan, in so far as credit scores / rating, income, and other lending criteria may be analyzed. Typically most lenders qualify purely on the type and amount of collateral the put to secure the loan.
Jumbo Hard Money Loans
Hard money loans are structured loans that are also based on the quick sale value of the property put up as collateral. This is referred to as the loan to value ratio, also known as the LTV ratio. Because of the fluidity of this loan the loan to value ratio is normally somewhere between sixty to seventy percent of the estimated market value of the property.
In a few cases, the low loan to values cannot support a loan of significant size to repay the existing mortgage lender, which is needed in order for the hard money lender to be in the first lien collection position. In the interest of security of the hard money loan the lender is always wanting to be in the first position of collection on the lien. For this reason a hard money lender may request a “Cross Lien” transaction which will allow a lien on another of the borrowers properties. This process of a cross lien is normally reserved for commercial borrowers as residential borrowers may not always have to ability or the property to put another property up for collateral.