How does a hard money loan work? That’s a question that a lot of people are asking these days. Not many people are familiar with a hard money loan rates or even what a hard money loan even is. In fact, perhaps we should start be defining the term hard money, to begin with.
Put simply, hard money is money received which is secured by assets. A hard money loan is a specific type of loan through which the borrower must secure the amount of money with real property. Typically this type of loan is issued to private investors or companies doing business. A hard money lender can expect to see the loan paid off more readily than other types of loans because the capital is of significant value.
A hard money loan might seem like a good idea to a business person or company who is in difficult straights, but there are some drawbacks, namely the interest rates. Hard money lenders usually charge higher interests rates for these types of loans. The typical interest rates for hard money loans can be anywhere from 15% to 18 or 20% and even higher. Often, these loans make the most sense if there is a plan in place to keep them short term.
Just because you have assets does not ensure that a hard money loan will be made to you or your company, though. You must have equity in your asset. A lot of lenders want to see that you have at least 30 to 50% equity in whatever asset you are putting up for collateral.
For example, many people buy their homes on a 15 or 30-year mortgage. The younger you are, the less equity you will have in your home because the equity increases over time with regular payments. So, obviously, the older you get, the more equity you will be able to offer your prospective lender when it comes time to consider your loan offer.
How does a hard money loan work, you ask? It works when you need a loan, have real property that you own and have significant equity in, and when you can afford to pay higher interest rates than you would otherwise.
The loan business is one that has been around for thousands of years. Lenders have always wanted to do all they can to ensure that the money they lend out is going to come back to them. It is not a bad way to do business if you can make your payments on time and if you have a plan to bring in more money than you have had to put out as a result.
How does a hard money loan work if you have never done one before? Well, the first thing to do is make sure you or your company meet all of these basic requirements–you own property with equity and you can afford the payments. Then, you need to find a hard money lender who is willing to work with you. The rest is up to you.