What is a hard money loan?

There are several different types of loans out their available for people to borrow from, these include- mortgages, student loans, personal loans, the notorious pay-day loan, and hard money loans among others. While the size and length or term of a loan will vary depending on a variety of factors including the borrower’s financial status and credit history, the lender, loan purpose, interest rates, and much more. A hard money loan works by using the value of real property being used as collateral as opposed to evaluating a borrower by their creditworthiness. Due to the use of property as collateral, hard money loans are almost always conducted between individuals and companies rather than traditional banks. Hard money loans like those offered by California hard money direct allow borrowers to raise money quickly though at higher cost and rates. Common uses for a hard money loan include- property flippers, and those with bad credit but solid equity on their home, among others.

Things to consider

There are a bevy of important considerations to make and decide upon before accepting a hard money loan. First, realize that hard money loans carry significantly higher risk and cost, at the same time these loans provide less stringent requirements in terms of loan approval, quicker access to potentially necessary capital, and the ability to adjust/customize repayment schedules. Many times hard money loan investors are not as concerned about immediate repayment due to their desire to attain much greater profits should the borrower default and the property that served as basis for the hard money loan be resold by the original lenders.

Another important thing to note is that the Loan To Value or LTV ratio’s of a hard money loan tends to be much smaller than a traditional mortgage loan, which is usually around 80% LTV ratio as opposed to a hard money loan which may vary from 50% to 70% and above LTV. As is true with all loans the riskier the loan is the higher the interest payments a borrower must make, with a loan from a company like California hard money direct a borrower will likely have to pay (as of 2019) between 7.5% and 15% interest depending on the borrower and the overall length of the loan, in comparison during that same period (2019) prime interest rates were sitting at a significantly lower average of 5.25%.