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The Basics of Hard Money Lending

Investors looking for finance options to build their portfolio should consider hard money lending.

What is a hard money loan?
Hard money loans are considered “hard” because their terms are specific and strict. They are also referred to as “private,” because they come from individuals with money to spare who are looking to invest it wisely, and not from lending institutions. These loans are asset-based and secured with real estate property, often when the buyer or the property cannot meet qualifications for traditional loans. To help offset the risk, hard money loans are usually issued with higher interest rates than conventional property loans and are frequently interest-only. A typical hard money loan is between 65% and 70% of the property value which also protects the lender in case of default and potential foreclosure.

Why would I want a hard money loan?
Hard money loans allow rapid access to money and are based on the value of the real estate property, not the credit score of the borrower. Investors in need of money quickly – more quickly than a bank could offer it to them – can use a hard money loan as an alternative to take advantage of a real estate opportunity. Those with bad credit scores and those who are lacking credit altogether can also consider this option. While there is likely a cost of potentially one to ten points to buy the loan, there is no money down required, making this an attractive loan method for those looking to purchase, renovate, and sell quickly.

Where do I find a lender?
Referrals are always the best recommendations. Check with your advisors, investment clubs, or banks, and they should be able to offer you a list of options to research. You can also contact mortgage companies, title companies, or real estate agencies to ask for referrals.

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About the Author

Yvette Shirey, Heatherstone
155 Gibbs Street Suite 555
Frederick, MD 21701

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