A Hard Money Loan or private money loan is simply a short-term loan secured by real estate. It is given using the property as a collateral and are funded by private investors (or a fund of investors) as opposed to conventional lenders such as banks or credit unions.
This loan is intended for short-term investors. The terms are usually around 12 months, but the loan term can be extended to longer terms of 2-5 years. The loan requires monthly payments of only interest or interest and some principal with a balloon payment at the end of the term.
When banks are not an option or the loan is needed in a short period of time, you can source financing through hard money loan.
A hard money loan, usually taken out for a short time, is a way to raise money quickly, but at a higher cost and lower Loan-To-Value (LTV) ratio. The ideal ratio is 80% or less. And because hard money loans are not traditionally executed, the funding time frame is reduced immensely. Repayment can lead to default and still result in a profitable transaction for the lender.
Hard Money Loan is ideal for situations such as:
- Finance Fix and Flips.
- Land Loans.
- Construction Loans.
- When the Buyer has credit issues.
- When a real estate investor needs to act quickly.
This type of loan is a short-term with higher interest rate, quick to acquire but also quick to be repaid. Nevertheless, getting this type of loan is a good fit for investors who need to get funding for a quick property investment.
- Can be acquired more quickly; you don’t need to have good credit standing to qualify because the loan is based on the property value.
- More Flexible because every lender has their own set of criteria.
- Provide tremendous leverage for Fix and Flips Investors to maintain liquidity without putting their own money at risk.
- Useful as a bridge loan to fund investment while securing longer term Financing.
- It offer higher interest rate due to more risk to the lender. It usually carry an interest rate of 4-10% higher than Traditional loans.
- Higher risk on both lender and borrower, due to loan higher interest and short-term that can lead to high financial burdens if not entered wisely.
- Must be paid back quickly in term specified.
- If you can’t repay the loan, you walk away with “nothing.”
Yes, typically you walk away with nothing if you fail to pay back the loan. Lenders are quick to foreclose. Since the entire property was used as collateral, any portion of the loan amount that was paid back is forfeited. For example, if a business owner paid back $100,000 of a $115,000 loan, the entire $100,000 paid is deemed lost.
When considering getting this type of loan, seek lenders with best reputation with fair terms like Associates Home Loan. Closely review the fees, interest rates, and terms. Needless to say, a lender’s proven and trusted loan history will get you a closed deal without the hassle of last minute change of terms.
Being self-employed is not a joke. The premise of being your own boss is truly enticing for almost all individuals working 9-to-5 and earning just enough for the family. However, and in reality, once you have tried being self-employed there will be a lot of self-realizations. The security of tenure, steady income, bonuses, health cards, and other benefits of being employed disappears with the promise of getting twice or thrice more income as your own business operator.
But what about the creditors? Yes, they have the same train of thought. Since not all businesses are registered, not all incomes are accounted for (possibly for tax purposes), and other aspects such as inconsistent revenue stream, an employee with their pay slip will be approved more and much faster.
No matter how well your SME for example is doing, without the proper documents and declarations, chances are the loan that you are aiming for will be greatly capped. Suddenly, your self-employed home loan pushes your dream house farther and farther away.
Luckily, there are several options already aiming to remedy this case. Your hard-earned money, whether from working for a long while or doing good on your ventures, should properly be assessed by companies that are looking to help more than be of burden. For example, in the Philippines, self-employed loans or self-employed home loans are fairly limited. You’ve got your bank financing (through pay slips) and that is pretty much it. A Government arm can help out but the covered amount is usually so low especially if you are a young couple looking to have your own home. Also, all the complications of the taxes scheme as well as individuals thinking that they can under-declare on their income will soon find out that it will be a demerit to their chances of being approved.
Unlike in the United States, specifically a Florida Home Loan case. The options are so flexible and it opens up a lot of opportunities on how you can manage and forecast your savings. Compared to other countries, you’ve got loans here that is heavily financed by independent companies and not just banks. Even “Bad Credit Loans” exists aims to grant you hefty amounts even if you don’t have good standing with other credit companies/banks.
Not only that, requirements can be adjusted to bank statements against pay slip, your tax forms, and even certificate of employments. These self-employed home loans hindrances are now slowly being eased by various sources. One can only hope that it is available some in your state or country due to the stringent list of requirements for the borrowers that they usually demand for.
After all, finally obtaining your dream home should not be something daunting. Even if you may have missed some tax documentation that would have padded your good credit, there are still many alternatives if you know where to look. Self-employed loans, in theory, should allow you to have a quicker turnaround due to the fact that you are earning more. In other parts of the world, potential earnings are weighed also that will allow you to have a higher loan ceiling. This should make borrowing much easier than ever.