Hard money loans are financing extended by private investors or companies rather than traditional financial institutions such as banks. The terms of these loans are typically shorter, and the interest rates are higher than those of conventional loans. But what else should you know about hard money loans? Read on to find out.
What is a hard money loan?
Hard money loans typically have shorter terms than traditional loans (1-3 years) and higher interest rates (8-18%). However, they can be easier to obtain because the lender cares more about the value of the property used as collateral than the borrower’s creditworthiness.
What are the benefits of a hard money loan?
Hard money loans offer several advantages, including:
- They can be easier to obtain than traditional loans because the lender cares more about the value of the property being used as collateral than the borrower’s creditworthiness.
- They can be used to finance investment properties that may not qualify for traditional financing.
- They can provide funding for projects with time-sensitive deadlines.
Now that you know more about hard money loans, you can decide if this financing is right for your needs. Be sure to research and compare offers from multiple lenders before deciding. And remember, with any loan, it’s essential to carefully consider the terms and conditions to ensure you can comfortably make payments on time.
What are the terms of a typical hard money loan?
The terms of a typical hard money loan are as follows:
-Loan amount: $50,000 – $10 million
-Interest rate: 8% – 18%
-Loan term: 1 – 3 years
-Prepayment penalty: 2% – 4%
-Origination fee: 1% – 10%
-Closing costs: 1% – 3%
-Minimum credit score: None required, but borrowers with higher credit scores will likely qualify for better terms
Interest Rates
Hard money loans usually have higher interest rates than traditional loans. The average hard money loan has an interest rate of 10-15%, but some lenders charge as much as 18-25%. The interest rate will also depend on the borrower’s creditworthiness and the type of collateral used to secure the loan.
Loan Terms
The typical term for a hard money loan is 1-5 years. Some lenders may offer shorter terms but usually, come with higher interest rates. Hard money loans are typically amortized over a 30-year period, meaning that borrowers will have to make monthly payments until the loan is paid off.
Loan-to-Value Ratio
The loan-to-value (LTV) ratio is the loan amount divided by the value of the property used as collateral. The LTV ratio for a typical hard money loan is 60-70%, but some lenders will go as high as 80%.
Final Thoughts
Now that you know more about the typical terms for hard money loans, you’ll be better equipped to shop around for a loan that meets your needs. Keep in mind that these terms can vary depending on the lender, so it’s always essential to compare offers from multiple lenders before making a decision.
