Everything About Hard Money Loan – Things You Need To Know When It Comes To It
One thing about hard money loan, or better known as private loan money, is the fact that this is a type of loan that can only be attained from sources that are specializing in the construction of the said loan. Not only that, there goes the fact as well that a hard money loan is a kind loan that consist of a first mortgage on a residence, leading to the creation of a hard money residential loans. Always bear in mind that there are several important identifying factors that are involved in hard money loan.
For an instance, it is usually the first mortgage which we have stated above. Since the borrower’s credit will not matter as much as the equity in the property does, a first mortgage that is in effect will stop any potential loss of the property, most especially if the borrower has another loan before the hard money loan. If you are wondering why the credit history of the borrower will not matter for hard money loan, well, that is due to the fact that the lender looks to the property for its security, not to mention that the lender is being paid dearly for the chance that they take by basing all the money on the value of the property alone.
The next thing that you have to be aware of regarding this matter at hand is the fact that another facet of a hard money loan has something to do with them usually charging very high interest rates and high points as well. You should know by now that if the property you have is secured enough, the high points will become a part of the actual loan you are getting from them. Most of the time, the loan is not paid in the typical principle plus interest, rather, they are more likely to be paid in interest alone with a balloon at the end of the stated loan period. What this mean is that the borrower, in effect, is paying interest on interest and since points are interest as well, and since the mortgage may have been calculated with the inclusion of points, the all the payments that borrowers will make are paying the interest only and thus, interest on interest.
You can actually say that it is common for hard money lenders out there to be careful and cautious when lending hard money thus, they resort to ensuring a careful appraisal is done on the property. They are doing this because they want to protect themselves from the possibility of getting deceived by the borrower or from having to suffer from significant loss if they cannot pay them back. As private lenders, they have to make sure that their interests are protected as well.