Understanding Loan Terms

Looking For A Loan? What Borrowers Should Know About Hard Money Loans

18 July 2018

Stanley Simmons

The terms "hard money loan" or "hard money lenders" can be confusing to the average consumer who is interested in borrowing money. Simply defined, a hard money loan is just a way to borrow money without going through a traditional lender or mortgage broker. Instead of using credit scores and histories to determine whether to grant the loan, as traditional lenders do, hard money lenders focus their lending decision on the value of the collateral the prospective borrower intends to use to secure their loan. If the borrower defaults, the hard money lender will sell the collateral to recoup their loss. 

Hard Money Loans Are Usually Shorter-Term Loans

Another key difference between a standard mortgage and a hard money loan is the length of time the borrower has to repay it. Traditional mortgages are usually amortized over a range of 15 to 30 years, while most shorter term hard money loans must be repaid in just 1 to 5 years. Borrowers who are considering a hard money loan should consider their financial situation carefully to make sure they have a reasonable assurance of repaying the loan in such as short time frame before making a final decision.

Hard Money Loans Offer an Alternative to Traditional Lending

Bankruptcy filings, home repossessions, business failures, and many other common financial issues can make it difficult or impossible to borrow money from traditional sources. Because hard money lenders do not have to meet strict underwriting rules, they are often able to work with borrowers who cannot qualify with their bank or a traditional mortgage lender. 

Hard Money Loans Can Offer More Fluid Terms

Traditional home loans have strict repayment terms that can be difficult for some borrowers to meet on time each month. This is especially true for borrowers who are building a new business or those that have an irregular income due to working on a contract or commission basis, such as sales professionals and many types of entrepreneurs. Because a hard money lender is able to offer much more flexible repayment terms, they are able to work with each borrower to design the loan terms to better meet their individual needs. 

Hard Money Loans Can Be More Expensive

One potential drawback of using a hard money loan is that it will likely have a higher interest rate than traditional lenders are able to offer. However, prospective borrowers can opt to repay the loan faster than required to minimize this potential cost. 

To learn more about hard money loans and whether they are right for your situation, prospective borrowers will want to sit down with a hard money lender, like the Axe Lending Group, in their area and discuss their options. 

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