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Sometimes a corporate borrower desires liquidity but does not meet the criteria for regular property loans or mortgages (primarily non-conforming loans). These kinds of loans are provided by commercial hard money lenders, consumers, or groups who specialize in this sort of lending.
Hard money lenders charge higher rates of interest in comparison with regular home backed lenders. Because there is a lot higher risk of default. And typically the hard money loans are the last secured lenders. To get their money back in bankruptcy filings. Typically, such loans are capped at around two-thirds of the most recent appraisal value. The home in repaired condition, typically quoted as an ARV (after-repair value). Contracts for short duration loans or “bridge loans” are written for homeowners. Who needs a short term solution until they can secure more permanent financing.
As a result of the increased risk profile of their clientele, the high-interest rates provide sufficient protection against impairment of the property, liquidity for the lender, and court costs and loan value impairments. Local governments sometimes ban hard money lenders from operating because of the high-interest rates they charge. Many people see this as an infringement on economic freedom.
So hard money lenders can be very local and segregated persons or small organizations. Because of this regulatory interference. Which are few and mostly just known by professional real-estate financiers.
Loan sharks sometimes abuse the legitimate lending process by charging exorbitant rates of interest. Pretending to be genuine hard money lenders. Over as collateral and therefore are vulnerable to certain unscrupulous lenders who may take advantage of their lack of knowledge.
The usual interest rate on hard money loans can be as high as prime plus fifteen. Even higher with five points on the borrowed funds. How available credit is in the vicinity are factors a hard money lender. Which will consider when giving a quote to a potential borrower. Real-estate industry insiders generally know quite a few local hard money lenders and know-how to shop around. Others with less experience should do a lot of research and fully understand. What they are getting into so they can find the best terms. Get the best deal for their hard money loan.
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