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What Is A Hard Money Loan ?

A hard money loan is a type of financing in which a borrower acquires a loan that is secured by real property. Typically, companies or private investors provide this type of loan. Compared with loans issued for commercial or residential property, interest rates are higher with hard money loans. Since those who take out a hard money loan have been typically refused a conventional loan from a bank or other financial institution due to poor credit or failing to meet other documentation required for a conventional loan which protects these financial institutions from high default rates, and hard money lenders do not have this protection, there is a higher risk for the lender regarding repayment of the hard money loan and so the lender applies a higher interest rate to the loan.

Some Types Of Hard Money Loans

  • Hard Money Land Acquisition Loan - this type of hard money loan is used to acquire raw or a plot of undeveloped land.
  • Cash Out Loan (or Cash-Out Refinancing): is a type of hard money loan that is used to refinance the outstanding balance of an existing mortgage. However, this type of refinancing loan can also include other debts, such as costs related to the transaction, the payoff of existing liens, and related expenses.
  • Value-Added Loan - this type of loan is provided by private capital lenders to borrowers who have real property projects and involves structuring a loan to fit a borrower's needs rather than having the borrower's needs fit the loan. For instance, when the borrower needs the money to build a new building floor, the loan will finance the construction of that floor and will therefore add value to the building hence the name value-added loan. The interest rate included in the initial amount for this type of loan is called an "interest reserve" which is used to pay either part or all of the loan's interest until the real property is fully leased and therefore becomes self-sufficient.
  • Bridge Loan (also known as short-term financing, gap financing, interim financing or swing loans) - a bridge loan is an interim financing loan either for a business or an individual that is used until either the next stage of financing is received or permanent financing is obtained. The permanent financing or next stage of financing obtained is then used to repay the bridge loan in addition to other capital expenditures.
  • Insufficient Global Income Loan - if a borrower cannot meet the entire financial portfolio requirements of a bank such as the minimum amount of their global liquidity, their income and cash flow, even if they have a clean credit history and the lending requirements for the individual loan and real property are met, then an Insufficient Global Income Loan can be approved for the borrower using the value of the borrower's real property as collateral rather than the borrower's overall financial situation.
  • Foreclosure Prevention Loan - this loan allows a borrower to avoid foreclosure on their real property. This type of loan is usually the only option available when the borrower is facing foreclosure on a real property. By obtaining a Foreclosure Prevention Loan to avoid foreclosure on a real property, the borrower avoids selling their real property at less than a fair market value.

Hard Money Loans And Loan Brokering

A loan broker is an intermediary between a borrower and a lender. A hard money loan broker will locate borrowers that meet the criteria of private lenders and present them to the lender who will select borrowers based on their level of risk. Depending on the arrangements, a hard money loan broker receives a fee either from the borrower or the lender.

With our high-income loan broker program, you can get started as a hard money loan broker in about 10 days.

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