Hard Money Lenders: Risk, Collateral, and More

Posted on September 23, 2008 by IC N in Residential
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When it comes to doing business with a hard money lender there is a lot that you need to be aware of. After all, dealing with one of these lending companies is not the same as a more traditional bank or lender. For this reason, it is quite important that you consider what hard money lenders have to offer. And not only what they have to offer in the form of benefits, but also what you must do in order to meet their requirements. The more that you know about hard money lenders, the better decision you will make when it comes to whether or not you should do business with them.

 

Why would anybody do business with a hard money lender as opposed to a regular bank? Generally speaking, hard money lenders are for those people who do not have the best credit in the world. In fact, there credit is so bad that they cannot even get a mortgage. If you are in this situation, but still want to buy real estate, a hard money lender may be able to come to your rescue. Since these lenders do not follow the same rules and credit outlines as traditional banks, people with bad credit have a much better chance of securing the loan that they need in order to buy. But with that being said, hard money lenders also have to deal with a high level of default. For this reason, they have to charge high interest rates in order to make enough money in the long run.

 

The collateral in a hard money lender deal is usually the real estate that is being purchased. Of course, it can also be other assets that the borrower has as well. This is all a matter of preference as well as what each side agrees on. In many cases, a hard money lender will only offer to loan a certain percentage of the overall cost of the real estate. For instance, they may offer the borrower 60 percent as opposed to the whole thing. In many cases, borrowers are forced to put up additional collateral in order to get 100 percent financing. This is something that you definitely need to consider if you are going to take out a loan from a hard money lender.

 

Overall, you may want to get a loan from a hard money lender if you cannot qualify for one from a more traditional source.