If you say private loan money, you are referring to hard money. When it comes to structuring these loans, hard money lenders come in. Most of the time, a hard money loan comprises your first mortgage on your residence, thereby giving the name hard money residential loans. There are many factors that come into play to identify a hard money loan. What follows are a few facts worth noting about this type of loan for you to understand it better before applying for one.
If you talk about hard money loans, they are often a first mortgage that you will take on. The amount of equity that you get from the property is what counts for this kind of loan. The credit standing of the borrower does not matter as much for this kind of loan. The borrower will not be losing all of his or her property because of the first will in effect. Take, for instance, if another loan comes ahead of the hard money loan. Hard money lenders don’t put as much importance to the credit score of the borrower because they only consider the property as the security. On the part of the lender, allowing the borrower to get money from them based on the value of their property is taking a chance so that they get paid dearly in return.
In terms of interest rates and points, you will be getting them very high when you borrow from hard money lenders. For properties that are deemed secure enough, the high points will added into the actual loan. You don’t get to pay this type of loan with the usual principle plus interest equation. With this kind of loan, you will be paying the interest only, which might include additional charges once the declared loan period is done. In short, with points being interest in themselves, you are paying interest on your interest. Your mortgage is often calculated to include the points. Therefore, as a borrower, each payment you make is only paying your interest.
If you must borrow from hard money lenders, you should expect for your property to be carefully appraised. This guarantees the money lender that they are protected properly. These lenders will see to it that they take a close look at the loan to value ratio of your property. This ratio will be the loan percentage amount that you will be getting against the present value of your property. Take, for example, your property is appraised at $100,000 on a 70/30 LTV. What this means is that the hard money lender will be lending you $70,000 against the value of your property.
In this modern age, you have plenty of hard money lenders to choose from. Only choose reliable lenders whom you can trust and have the necessary experience in the field.