If you end up in a soup with your real estate deal and need money immediately, a hard money loan could be an answer. In simple words, hard money loans are short-term bridge loans that have terms based on the property/real estate asset and not on the financial status of the borrower. If you ask around, you will find that most hard money lenders in Scottsdale, AZ are private lenders or companies, because banks and traditional lenders don’t take interest in such loans. Here are some more aspects that people need to know before taking a hard money loan!
Understanding the process
It’s not surprising that hard money loans cost a lot more for the borrower, but eventually, this could be the only choice that they have. With hard money loans, it is easier to access capital, although that comes for a higher cost. For borrowers who have adequate property equity but a not-so-bright credit situation, this form of lending works well because it can be used for preventing foreclosure. A lot of property flippers use these loans to buy, renovate and resell properties, often within the period of one year. Such loans are usually given for a year, but terms may extend to as much as three years.
Applying for hard money loans
One of the biggest advantages of hard money loans is the approval process. Applying for a mortgage or bank loan is often a complicated process, but private lenders who offer such quick loans don’t require a credit check. They wouldn’t be interested in knowing the creditworthiness of the borrower, but will only check if the property is worth the value, because they can always resell the property and get their money back, which may mean more profit. The loan-to-value (LTV) ratio for such loans is low, so in a way, this is an expensive loan, also because the interest rate can be high, often as much as 15%.
You have to find the right lender for hard money loans, and you have to consider the terms and conditions in detail before you take the final call. It may mean negotiating a lot and ensuring that you are capable of repaying the loan in time, because the asset is at stake here. The application process usually simple and doesn’t require a lot of effort, provided the lender is ready to shell money for the requirement.