Vital Information Regarding Hard Money Loan That You Should Know Of
Hard money loan, or better known for the name private loan money is a kind of loan that comes from a source that is specializing in the structuring of the said loan. Furthermore, we want you to know as well that this is a kind of loan that comprises of a first mortgage on a residence that leads to the creation of hard money residential loans. Take note that there are quite a number of important factors that must be taken into account when determining a hard money loan.
For an instance, it is usually the first mortgage which we have stated above. Due to the fact that the credit history of the borrower will not matter as much as the amount of equity in the property, a first mortgage that has taken an effect will prevent any potential loss of the entire property if, for instance, there is another loan before the hard money loan. For those of you out there who may be wondering about the possible reason as to why lenders do not mind the credit history of the borrower, well, that is because they look to the property for security, plus they are being paid dearly as well for the chance they take by basing the payment on the value of the property alone.
Another thing that you should know regarding hard money loan is the fact that they are typically charging very high interest rates and high points as well. In some cases, if the property of the person applying for a hard money loan is secured enough, the high points will be rolled into the actual loan. The truth of the matter is that the loan is actually not paid in the normal principle plus interest, instead, they are more likely to be paid with interests only, with a balloon at the end of the specified loan period. This only means one thing and that is the fact that the borrower is paying interest on interest and since points are interest and since mortgages are calculated with the inclusion of points, this only goes to show how every payment the borrowers make is paying interest the interest alone hence, interest on interest.
You can actually say that it is common for hard money lenders out there to be careful and cautious when lending hard money thus, they resort to ensuring a careful appraisal is done on the property. They are doing this because they want to protect themselves from the possibility of getting deceived by the borrower or from having to suffer from significant loss if they cannot pay them back. This is their way as well to ensuring that their interests are protected.