Hard money loan is a domestic name in the US and Canada. Consequently, hard money loans NYC is a popular one in the city of New York and others. It is considered as a mortgage alternative for borrowers who need to invest quick capital for a short or intermediate period. Sometimes, investors turn to hard money loans when they cannot access traditional and conventional loan channels. This is because the loan gives them greater flexibility in term setting and risks assessments. It is also usually given by private individuals and that make it suitable for investors who doesn’t want to deal finances with public and government institutions.
Hard money loan is also called bridge loan because of its intermediate use. US citizens and residents must be familiar with Queens hard money loans, Brooklyn bridge loans, Staten Island bridge loans, among others. Whichever, below are important facts to note about hard money loans.
Loan application simpler and easier
This is compared to conventional loan application. Borrowers are faced with less delay and paperwork challenges. In fact, loans can be approved in 24 hours and ten days closing periods are usually given on loans. In some cases however, loan closes only in few days.
Context of equation and difference
That hard money loans are called bridge loans or otherwise should not raise concerns to borrowers. In some contexts they are equated and in others distinguished. When separated, bridge loans are used to mean commercial or investment property loans used for intermediate real estate transactions, while hard money loans are used more on delinquent mortgages, foreclosure and bankruptcy. The truth however is they are usually not separated.
Lower loan-to-value ratio
Many are usually thrilled with how easy it is to acquire hard money loans (because it isn’t backed by credit rating, assets or equity) and forgetting the risks that are involved. The collateral in the deal is the property being purchased itself, making loans riskier to lenders, hence the use of lower loan-to-value ratio which often range from 60-75 percent of property.
Need for property and professional information
Hard money might not be the best financing option for you if you don’t want to reveal information about the use of money to lenders. They want to have thorough information about property as well as your professional experience in the market to be sure you won’t default loan. They might not give out loan except all these are provided.
Best for intermediate transaction use
Because of loan attracts high interest rates, they are best used for high profit yielding intermediate transactions. In real estate’s use for example, lenders usually estimate both the resent and after flip value of a property for financial feasibility before giving hard money
Loan-to-value not same as used by conventional lenders
LTV for hard loans are usually not the same for market value used by traditional lenders, rather it is lower and usually based on what lenders expect to get on property at a specified selling time.
Hard loans attracts higher interest rates
This is one risk in borrowing of hard money and why it is best used for intermediate transactions. If its higher interest rates are allowed to accumulate over a long period, borrower might end up defaulting. Interest rates are usually between 12 percent and 21 percent but could rise as high as 25 percent to 29 percent in case of default. Sometimes, prepayment penalties are also involved.
Additional fees (Point rates)
In addition to basic interests, there are usually point rates which borrowers are expected to pay. A point is usually 1 percent of the total principle. Compared to 1-3 points of conventional lenders, hard loans may attract as high as 3-6 point.
First and Second lien position
In case of loan defaults, hard money lenders usually require first lien position. This means that they will be first in line for repayment on foreclosure sales. They also take second positions but very rarely.
Hard money loans might not be of the best use for every situation but they would definitely serve effective functions which would be beneficial to both lenders and borrowers if properly planned and utilized.